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WORKING CAPITAL MANAGEMENT AND ITS IMPACT ON THE FINANCIAL
RESULTS OF COMPANIES
D.N. Bedniaev1, Student
E.O. Khamurova , Student
1Kutafin Moscow State Law University 2Plekhanov Russian University of Economics (Russia, Moscow)
DOI: 10.24411/2411-0450-2021-1009
Abstract. This article assesses the impact of working capital management on the profitability of a selected aircraft and component manufacturing company in Russia. The main purpose of this investigation was to study working capital management and its impact on the financial performance of companies. The results show that company management can improve firm's profitability by reducing the number of day's inventories and receivables.
Keywords: working capital management, financial performance, cash operating cycle, cash conversion cycle, liquidity.
Working capital is a fundamental part of any organization. Problems of working capital of the enterprise, at the moment, are the most relevant. This is due to the fact that from the use and working capital management, depends on the liquidity of the enterprise. To each to ensure continuous and stable operations timely purchase of raw materials, supplies, materials, containers. For permanent the business process, the enterprise should create some reserve volume of finished products.
Working capital is a measure of a company's liquidity, operational efficiency and its short-term financial health. If a company has substantial positive working capital, then it should have the potential to invest and grow. If a company's current assets do not exceed its current liabilities, then it may have trouble growing or paying back creditors, or even go bankrupt.
To calculate the working capital, compare a company's current assets to its current liabilities. Current assets listed on a company's balance sheet include cash, accounts receivable, inventory and other assets that are expected to be liquidated or turned into cash in less than one year. Current liabilities include accounts payable, wages, taxes payable, and the current portion of long-term debt. Current assets are available within 12 months. Current liabilities are due within 12 months.
Working capital that is in line with or higher than the industry average for a compa-
ny of comparable size is generally considered acceptable. Low working capital may indicate a risk of distress or default.
Most major new projects, such as an expansion in production or into new markets, require an investment in working capital that reduces cash flow. But cash will also fall if money is collected too slowly, or if sales volumes are decreasing - which will lead to a fall in accounts receivable. Companies that are using working capital inefficiently can boost cash flow by squeezing suppliers and customers.
Payments for finished products divert cash from circulation, creating accounts receivable. To maintain liquidity enterprises place temporarily free cash assets in different short-term investments that have high liquidity and seamlessly return back to monetary assets. Therefore the company creates working capital, which consists of working capital funds and short-term financial investments.
Working capital is a monetary expression of the totality of current assets, which are part of the property of the enterprise, used to ensure the production process, sales of products and to increase income by investing in short-term financial market instruments. Under the working capital, also, understand the monetary expression of the part of current assets used for current operations during each operating cycle.
Consider the large company PJSC "Irkut", producing aircraft and components in Russia.
Conclusion. The Resource productivity for the period decreased and amounted to 0.27, which indicates a decrease in the efficiency of use of the assets of Irkut PJSC. Its low value is explained by the specifics of the organization's industry; for a year, resources cannot make 1 cycle, due to the time required for the production and sale of aviation industry goods.
The working capital turnover ratio is higher than resource return and also has a negative dynamics (-2%), the working capital turnover ratio measures how well a company is utilizing its working capital to support a given level of sales. A high turnover ratio indicates that management is being extremely efficient in using a firm's short-term assets and liabilities to support sales.
The return on intangible, fixed and non-current assets also tends to decrease due to a decrease in revenue and the growth of certain items.
Calculating the turnover indicators for 20182019, we get:
Considering the indicators of asset management, it should be noted the increase in the inventory turnover period to 307 days, which is 33 days more than in the base period.
In general, during the period, the business activity of the enterprise decreased due to negative growth in revenue and positive growth in balance sheet indicators. Among the positive changes can be identified a decrease in the maturity of debts both on the part of the company and its counterparties. There was an increase in the duration of the operating cycle (by 42 days), during which the funds are in the operations of the production and commercial process.
An Operating Cycle (OC) refers to the days required for a business to receive inventory, sell the inventory, and collect cash from the sale of the inventory. This cycle plays a major role in determining the efficiency of a business.
Operating Cycle = Inventory Period + Accounts Receivable Period
Growth rate
Indicators 2018 2019 Deviation
Revenue 63 137 644,0 54 902 268,0 -8 235 376,0 87%
Average annual asset value 187 920 779,0 205 281 026,0 17 360 247,0 109%
The average annual value of non-current assets 60 840 216,0 88 974 020,5 28 133 804,5 146%
The average annual value of current assets 128 494 296,0 116 807 004,0 -11 687 292,0 91%
The average annual value of fixed assets 20 272 084,0 28 234 864,0 7 962 780,0 139%
The average annual cost of intangible assets 205 729,5 157 988,0 -47 741,5 77%
The average annual cost of equity 17 559 281,0 12 236 637,5 -5 322 643,5 70%
Average annual inventory value 47 924 032,0 46 768 048,5 -1 155 983,5 98%
The average annual cost of receivables 44 890 837,0 47 414 441,0 2 523 604,0 106%
The average annual value of accounts payable 32 284 615,5 34 374 185,5 2 089 570,0 106%
Resource productivity 0,34 0,27 -0,1 80%
working capital turnover 0,49 0,47 0,0 96%
return on intangible assets 306,90 347,51 40,6 113%
capital productivity 3,11 1,94 -1,2 62%
return on equity 3,60 4,49 0,9 125%
Return on non-current assets 1,04 0,62 -0,4 59%
Inventories days 273,25 306,66 33,4 112%
Receivable repayment period 255,96 310,90 54,9 121%
Payables repayment period 184,08 225,40 41,3 122%
Operating cycle 187,68 229,88 42,2 122%
Cash conversion cycle 345,13 392,17 47,0 114%
The Cash Conversion Cycle (CCC) is a metric that shows the amount of time it takes a company to convert its investments in inventory to cash. The conversion cycle formula measures the amount of time, in days, it takes for a company to turn its resource inputs into cash.
Cash Conversion Cycle = DIO + DSO -DPO
References
1. [Электронный ресурс]. - Режим доступа:
The cash conversion cycle formula is aimed at assessing how efficiently a company is managing its working capital. As with other cash flow calculations, the shorter the cash conversion cycle, the better the company is at selling inventories and recovering cash from these sales while paying suppliers. We have an increase in CCC which seems negative dynamics.
http://www.irkut.com/investors-and-
shareholders/ras-financial-statements/
2. [Электронный ресурс]. - Режим доступа:
https://corporatefinanceinstitute.com/resources/knowledge/modeling/working-capital-formula/
УПРАВЛЕНИЕ ОБОРОТНЫМ КАПИТАЛОМ И ЕГО ВЛИЯНИЕ НА ФИНАНСОВЫЕ РЕЗУЛЬТАТЫ КОМПАНИЙ
Д.Н. Бедняев1, студент Е.О. Хамурова , студент
1Кутафина Московский государственный юридический университет 2Российский экономический университет им. Г.В. Плеханова (Россия, г. Москва)
Аннотация. В данной статье оценивается влияние управления оборотным капиталом на прибыльность выбранной компании-производителя самолетов и компонентов в России. Основная цель исследования заключалась в изучении управления оборотным капиталом и его влияния на финансовые результаты компаний. Результаты показывают, что менеджмент компании могут повысить прибыльность фирмы за счет уменьшения количества дневных запасов и дебиторской задолженности.
Ключевые слова: управление оборотным капиталом, финансовые результаты, денежный операционный цикл, цикл конвертации денежных средств, ликвидность.
