Rationing of circulating assets — the process of identifying the minimum but sufficient (for the normal course of the manufacturing process) value of circulating assets at the enterprise, i.e. the establishment of economically justified (planned) standard inventory and regulations regarding the working capital items.
This ratio is not constant. The size of working capital depends on the volume of production; conditions of supply and distribution; range of products; used forms of payment. It should be noted that this is one of the most volatile indicators of current financial activity.
Rationing of circulating assets is carried out in cash. The basis of determining the need for these estimates put the cost of production for the planning period. In addition, for enterprises with non-seasonal character of production as the basis for calculations, it is advisable to take the data for the 4th quarter, in which the volume of production is usually greatest in the annual program. For enterprises with seasonal nature of production data from the quarter with the lowest production volume, as a seasonal need for additional working capital provide short-term loans of the Bank.
To determine the standard takes into account the average consumption of standardized components in monetary terms.
Normalization process consists of several consecutive stages, where established private and combined ratios. In the beginning developed standards stock for each element of normalized working capital.
The norm is a relative value that defines the stock of working capital, as a rule, norms are established in days.
This indicator is relatively stable and may vary in case of: change of the range; suppliers; technology and organization of production.
Further, based on the standards stock and of the consumption of this type of inventory is determined by the amount of working capital required to create a standard inventory for each type of current assets. So defined private standards.
The ratio of current assets is the monetary value of the planned supply of inventory necessary for normal economic activity of the enterprise.
The total ratio of current assets consists of the sum of private standards:
N total = N s + N n p + N g p + N b.R,,
NP.z — standard of inventory; NN.p — the ratio of work in progress; Ng.p — the ratio of finished products; NB.R — the ratio of future costs.
Methods of rationing of circulating assets:
1. An analytical method. All specified current assets combined into two groups:
- working capital-dependent growth of volume of production (raw materials, basic auxiliary facilities, purchase materials, fuel, packaging, WIP, finished products). The ratio is defined as the ratio of the current year, adjusted for the amount of the planned changes in the volume of production and accelerating turnover.
- working capital-independent growth of volume of production (tools and other similar means). The total amount of these elements is calculated on the basis of the standard base year, which changes in correlation depend on the volume of commodity output in planned year taking into account the acceleration of the turnover of fixed assets.
2. Coefficient method: is the inventory adjustment inventory by applying a system of coefficients that characterize the conditions of supply, production and sales.
3. Direct counting method is the most accurate and justified, but it is time consuming. It is based on the definition of the standard inventory on the elements of working capital and ratio of current assets for every element (private standards) and the aggregate ratio for all the elements of working capital. Using this method, normalization involves three steps:
Stage 1 – development of norms of supply of certain types of goods and materials.
Stage 2 – definition of private standards for each element.
Stage 3 – the definition of the total norm, as the sum of private standards on production stocks, unfinished production expenses of future periods and reserves of finished products.
Calculation by the method of direct calculation begins with the definition of norms of inventory in days, day then determined the need for working capital = total volume (4-quarter) \ 90. If calculated according to work-in-progress, picks up the cost; if the finished products is calculated based on the production cost of commodity products.
A) raw materials: a one-day demand of raw materials * the rate of inventory days on raw materials and material.
NC,m = Day flow rate * Na m
The norm for raw materials and materials consists of the transport of stock, current stock, handling stock, safety stock, process stock.
Transport stock created for the period of turnover and of turnover, the time from the date of payment of raw materials before they enter the enterprise.
Unloading the stock (temporarily adopted) is required for the period of acceptance, unloading, sorting, storing materials.
Current stock is designed to provide the normal course of production activities in the period between two successive batches of supplies. The rate of the current stock depends on the interval of supply, volume of supply, number of suppliers, storage conditions, the intensity of consumption.
Safety stock = 50% of the current stock.
Technology reserve is created in cases where the material requires pre-treatment or aging for the imparting of certain consumer properties. This stock will be taken into account if it is not part of the production process. For example, in preparation for the production of certain types of raw materials requires time for drying, heating, grinding, etc.
The interval between two adjacent supply for settlement is determined in two ways:
1) based on the plan data. If a pipeline supply is calculated as 360 \ the number of scheduled deliveries per year. It is necessary to consider the coincidence of supply of the same material from different vendors.
2) If the contract does not set specific delivery times, the average cycle supply is determined on the basis of the actual data on the flow of materials this year. Current stock is:
a) in the absence of sharp fluctuations in volumes as the arithmetic mean value,
b) there are sharp fluctuations – as a weighted average.