Revolving fund is the share of the organization’s production assets that is fully consumed during the production cycle and pays for its value as a result of the sale of the product. Consider the structure, composition, indicators of working capital in this article in more detail.
We will reveal the concept and structure of working capital
Revolving fund is the represented value of the material, raw materials, all inventories for the manufacture of the product, transportation, storage. There are two groups of material elements of PF:
- Materials and raw materials for the manufacture of the product. That is, those items that are not yet involved in production.
- Unfinished production.
The concept and definition of working capital is also understood as the financial valuation of values that are used for a short time. The company is recorded in the balance sheet among assets (short-term). Inventories and production that is not completed are divided into different groups of financing:
- Inventories are advanced in advance with the receipt directly of the entity.
- Work in progress, financed in three ways:
- at the full cost of work items already or in the future (materials, electricity, fuel);
- depreciation, partial cost;
- on wages.
Revolving fund is the material, technical, labor and other means that are involved in the production and sale process. This is a brief and more understandable definition.
Use of revolving funds
Effective and rational work of the organization is to obtain maximum benefits at lower production costs. In order for the company to operate successfully, a clear and accurate distribution of working capital is necessary. The functioning of working capital is influenced by many factors:
- characteristics of manufactured products;
- features and individuality of technical and material support;
- the amount of expenses in relation to the previous period (progressive standards);
- stocks and standards of work in progress;
- durability and product quality.
The main task of any organization is to obtain the highest quality product at the lowest cost of production.
Working capital indicators
Four main indicators can be used to evaluate the production process and the result of using working capital assets.
Main characteristics:
- The turnover ratio means the number of completed revolutions in a certain amount of time.
- The duration of one revolution. Shows how much time is spent on 1 production cycle.
- Specific consumption of materials and raw materials. The total amount of raw materials that was spent on one product (per unit).
- Material consumption. The amount of financial resources spent on the production of the 1st unit of the product.
Conclusion
Revolving fund is a kind of indicator of the competent distribution of material and intangible resources. The more carefully everything is distributed, the more rational and profitable the enterprise is.
