Coefficient of provision with own circulating assets: what is it and how to calculate
Coefficient of ownworking capital discloses whether the enterprise has enough of its funds, which are necessary for its financial stability. The presence of capital in an economic entity is one of the most important conditions for the effective operation of the enterprise. It refers to a group of coefficients that determine the financial stability of an organization.
Own means show the levelliquidity and solvency, as well as the extent to which the company is able to close its obligations at the moment, implementing current assets. The provision of own circulating assets is extremely important for the positive functioning of the enterprise.
In the absence of such, we can say that all current assets are formed at the expense of borrowed capital. This happens when there is a lack of own sources.
Coefficient of owncirculating assets presumably should be more than one tenth. At a lower value, it can be said that the business entity does not have enough money to finance the current activity. It should be noted that the value of this indicator is very strict, it is very difficult for Russian enterprises to achieve it.
The ratio of own circulating assets is calculated in the following ways:
Kosos = SoboSp / OA;
or Kosos = (Sobakan - Extra) / ObA;
or Kosos = (KR + DBP + RPR-VNA) / ObA,
- SobObSr means own funds;
- SobKap - own capital;
- Extra-long-term assets;
- KR - the result of the section on capital and reserves;
- DBP - income in future periods;
- RPR - reserves for forthcoming expenses;
- ObA is current assets.
The meaning of the second formula is:the difference in the numerator is the financing of the most illiquid (non-current) assets, using the most stable sources of their own. In addition, a portion of the working capital must remain in order to ensure the financial activities of the firm.
The ratio of the security of current assets by own means can also be determined using the balance:
Kosos = (490 - 190) / 290 (in lines).
This ratio is not applied in Western countries. In the Russian practice it was introduced to determine the bankruptcy (or insolvency) of an economic entity.
Factors that determine how muchthe economic entity is provided with its own resources, are identified as a result of correlation-regressive analyzes. As a result, the most interrelated with the considered coefficient are the following:
- current liquidity;
- profitability of sales;
- stock turnover;
- labor productivity.
Coefficient of ownworking capital, along with these indicators, helps to make a general financial picture of the organization. And this is the most important characteristic of the enterprise. Thus, the competitiveness of the economic entity, its potential opportunities is determined, and the degree of assurance of the economic interests of the firm itself and its partners is estimated. If the enterprise is financially stable, then among organizations of the same profile it is able to attract more investments, obtain loans, choose suppliers and select qualified specialists.