Instruction

1

Calculated according to balance – the most simple, fast and convenient. Official estimates use a formula, spelled out in an official document - Methodological provisions for the assessment of the financial condition of the organization. This formula for calculation of working capital of the enterprise must from the sum of section III of the balance deduct the amount of section I. in order to calculate their own turnover

**means**the company is more practical, add to the amount of own funds long-term loans and borrowings. The fact that long-term borrowed**funds**are used traditionally for the acquisition of fixed assets, so you may consider them in their own revolving**funds**H.2

Calculation using mathematical formulas much more complicated. These formulas there are several, and each of them allows you to calculate your own working

**funds**(SOS). In order to determine SOS, subtract the amount of their sources of non-current assets. You can also calculate your own current**funds**on a formula taking into account long-term loans. Sum of own and long-term borrowed**funds**, and then subtract from the resulting value non-current assets. Finally, if using the third option, take the value of current assets and subtract from it the value of short-term debt.3

Despite the fact that the exact meaning of all the mathematical expressions for the calculation of SOS differs in meaning and content, these differences are quite thin and are of greater importance in science of financial analysis, not for practical use. Therefore, all versions of calculations will give a correct estimate of the amount of working capital. Importantly, identifying the dynamics that have occurred over the last 2-3 years of activity of the enterprise, estimate the value of own circulating assets in the same way.

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To assess the adequacy of working capital in the company, calculate the ratios of financial stability, which may also be considered as according to the balance sheet, and appropriate formulas.

# Advice 2 : How to find working capital

Own working capital is part of current assets formed at the expense of own capital. Working capital needed to Finance current activities of the organization. In their absence, or shortage the company has to apply for the borrowed funds.

Instruction

1

To find the value of own circulating assets of the enterprise, you should know the amount of sources of own funds non-current assets. Working capital will be calculated as the difference between these values:

SOS = SK – VA where: SOS working capital; SK – own capital of the enterprise;VA – non-current assets.

SOS = SK – VA where: SOS working capital; SK – own capital of the enterprise;VA – non-current assets.

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Sometimes to equity equate the amount of long-term liabilities (long term borrowings). In this case, working capital will be calculated as follows:

SOS = SK + TO ISLANDS, where long – term obligations of the enterprise.

SOS = SK + TO ISLANDS, where long – term obligations of the enterprise.

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You can find the amount of own funds another way – as the difference between the sum of current assets and current liabilities of the company: COC = OA – KO, where: OA – floating assets; CO – current liabilities of the organization.

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Remember that the amount of working capital is one of the most important indicators of financial stability. Their absence suggests that all current assets of the organization, and sometimes part of non-current assets formed at the expense of borrowed sources.

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The amount of working capital you can use in the calculation of the ratio of own working capital. It is defined as the ratio of the magnitude of working capital to the value of current assets. This ratio shows what proportion of current assets formed at the expense of own funds of the enterprise.

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In this case, note that the company is financially unstable, and the structure of balance unsatisfactory, if the ratio is less than 0.1. This value is considered standard for the considered factor, but, as practice shows, this criterion satisfies a small percentage of enterprises.

# Advice 3 : How to determine working capital in the balance sheet

One of the indicators of financial stability is the presence in the structure of the balance sheetand working capital. To determine their financial statements, it is possible to apply different methods of calculation.

You will need

- Accounting balance sheet (form No. 1).

Instruction

1

Own circulating

**funds**(SOS) characterize the amount of investment of the organization in current assets and provide our own sources of capital and reserves, the value of which is determined on the same section of the form №1 balance. For determination of working capital, find the difference between equity and non-current assets, using the formula:SOS = (p. 1300 – 1100 pages)(form # 1).2

To equity also include long-term loans and borrowings, included in section IV of the balance. This is because most often they are attracted to investments in capital construction and acquisition of fixed assets, and these processes require time to complete and return. If there is on

**balance**of the enterprise long-term liabilities, apply the following formula for calculation of working capital:COC = (line 1300 + line 1400 – p. 1100) (form # 1).3

Another approach to the definition of working capital involves the calculation of the difference between current assets and current liabilities. Subtract the amount of current liabilities from the amount of current assets:SOS = (p. 1200 – 1500 pages) (form # 1).

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A positive value obtained as a result of calculations on any of the proposed formulas, means good financial position, solvency and independence of extra sources of formation of circulating assets. A negative index indicates financial instability of the company and that all revolving

**funds**and possibly a portion of non-current assets formed at the expense of borrowed capital and not their own.5

Monitor the status of working capital in the dynamics at the end of each reporting period. With a trend to reduction of their share in current assets as this will allow time to make the right management decisions and avoid bankruptcy.