Current assets, their essence and analysis

What does the term "current assets" include? It means the whole mass of money advances to the creation of circulation funds and production revolving funds, which ensure their continuous circulation. To understand the essence of these assets, you should carefully understand their purpose and movement in the enterprise. In their circulation, current assets consistently pass through 3 stages: monetary, production, commodity.

The first stage of the turnover is monetary, at which the transfer of funds to the stocks intended for production is carried out. Roughly speaking, the enterprise acquires objects of labor (materials and raw materials) and means of labor (service life up to 1 year).

The productive stage involves advancing the value of the products created, but not in full, but in the amount of used production stocks. At this point, unfinished production is being formed and advances are made for labor costs (wages) and parts of fixed assets.

At the commodity stage, the advance of the final product of labor (finished products) continues . Previously advanced working capital is reimbursed at the expense of proceeds only at the moment when the commodity form of the created value turns into cash, or, more simply, at the time of sale of the product. The minimum estimated amount necessary for the uninterrupted operation of the enterprise is established by the standard of current assets.

Since any production activity directly depends on the efficiency of use and the size of working capital, a detailed analysis of the company's current assets plays a primary role in the administrative control of the effectiveness of entrepreneurial activities.

All current (mobile and current) assets of the enterprise are displayed in the balance asset, namely in its second section. The analysis usually starts with the grouping of all assets according to the degree of liquidity. In the process of grouping, current assets are distributed according to the following parameters:

- the most simply implemented, which have the least risk in terms of their liquidity. Such assets include money, shares, bills;

- assets are easy to implement, which have a low degree of risk. These include: accounts receivable of counterparties, with a stable financial condition, all material stocks (except stale), finished products of increased demand;

- assets that have an average level of liquidity. These include unfinished and finished products that have an industrial and technical purpose;

- little liquid (hard-to-implement) current assets, with a high degree of implementation risk. These include: stale material resources, receivables from counterparties with poor financial condition, finished products with low demand.

During the analysis, the dynamics of the ratios of hard-to-find assets and the total value of current assets are estimated. An increasing ratio indicates a decrease in liquidity. For in-depth analysis, the composition of work in progress, inventories, finished products by types and grades is studied.

Analysis of the turnover of current assets should be carried out regularly. The general indicators of turnover are:

- Turnover ratio, which is calculated as the ratio of revenue to the average value of assets for a specific period;

- duration of turnover, calculated as the ratio of the average balance of assets to the amount of one-day revenue for a certain period.

A good indicator is the increase in the number of turns compared to previous periods, as growth indicates the rational use of these assets.