ABOUT CAPITAL TURNOVER AND THE METHODOLOGY OF ITS ANALYSIS
Capital turnover is constantly repeating process of capital transformation from one to another form and turning it in its initial form. This process comprises capital advance for acquisition of production means and manpower, the use of the resources in the production of finished goods, sale of finished goods, and the return of capital in its original form.
We will study the capital turnover with view of the stages of its movement. During the first stage, the capital is transformed from monetary into product form, as production means (long-term tangible assets and material resources) and manpower that are required for the enterprise’s business. The second stage – the stage of the production process, capital is transformed from one commodity form (production resources) in another commodity form (finished goods). During the third stage, the capital is transformed from commodity to monetary form, i.e. it recovers its original form.
The issue of capital turnover is topical at all phases and stages of enterprise’s development. The acceleration of capital turnover results in release of capital embodied in different resources that can be advanced in appropriate activities, thus to increase the enterprise’s gains, and therefore – the capital return. The deceleration of capital turnover results in shortage of means required for the normal course of the enterprise’s business, and in its turn the enterprise is thus forced to raise additional funds in order to operate. This increases the share of borrowings and the level of financial risk the enterprise is exposed to.
The interest to capital turnover is due to the insufficient understanding of the importance of this issue both for the successful and efficient development of enterprises’ business, as well as for the prosperity of economy as a whole. This is one of the most important issues – driver of business and economy, which is topical, irrespective of the type of ownership of the production means, the organization of the economy and the specific public and political environment. As a result of the insufficient understanding of the importance and significance of capital turnover, some thoughts exist that these are obsolete, archaic and all but unnecessary methodologies for analysis of capital turnover in the conditions of market competition.
Capital turnover may be analyzed and assessed from different points of view. For example: according to the sources of its formation (equity and borrowings); according to the duration of capital involvement in the enterprise’s turnover (fixed capital and short-term borrowings); according to the resources in which the equity is embodied (share equity and working equity), etc.
The object studied in this publication is the capital turnover of enterprises with industrial principal business, and the subject matter of the study covers the methodology for analysis of equity turnover with view of the resources it is embodied in.
The aim of this publication is to reach a methodology for analysis and assessment of equity turnover, which is feasible for the economic practice and useful for the industrial enterprises’ management to make proper and reasonable decisions for the business development in operational and strategic aspect.
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