An entrepreneur invests and puts capital into production not for the sake of making a one-time profit, but for the purpose of continuously increasing capital value. This becomes possible thanks to the very form of movement of production assets - the form of circulation.
The circulation of capital ends in the same physical form as it began, therefore, it can be repeated again and again.
The circulation of industrial capital (production assets), considered as a continuously repeated process, forms its turnover. Capital turnover assumes that all advanced capital will increase in value and return in its original physical form.
The time during which this process takes place is called the turnover time of capital.
The turnover time depends on the specifics of the investment industry. In heavy industry, capital turns over, as a rule, more slowly than in light industry. For every entrepreneur it is not indifferent how soon the capital will complete its turnover. In order to reduce turnaround time, measures are being taken to rational organization production process, eliminating downtime. Technological innovations play a major role in speeding up production processes such as wood drying, painting and drying of products, catalysis chemical reactions etc. Reducing turnaround time also depends on the efficiency of logistics, product transportation time and the speed of its sale on the market.
If we compare the turnover time of capital with some conventionally accepted unit, for example, with a year, we will get an idea of the number of turnovers made by capital per year. This indicator will characterize the rate of capital turnover. Thus, if the capital turnover time is 4 months, the turnover rate will be 3 turns per year.
Different elements of production assets make their turnover differently. From this point of view, productive capital is divided into fixed and working capital (fixed and circulating assets).
Main capital. Tangible carriers of fixed capital are, as a rule, means of labor: industrial buildings, machines, equipment. The means of labor participate in the production process as a whole, but transfer their value to the product in parts as they wear out physically. This determines the characteristics of the turnover of fixed assets. In the course of turnover, there is a kind of bifurcation of their value. One part transferred to the product enters the circulation process, completes the circuit and returns to the entrepreneur in in cash after the sale of the goods. As this part of the cost accumulates, it forms a fund for the replacement of fixed capital, or a depreciation fund.
The other part exists in the form of the residual value of the means of labor that continue to function in the production process. As wear and tear and amortization proceed, the residual value will decrease and the replacement fund will increase. The turnover of fixed capital will be completed when all parts of its value have completed their circulation and returned to the entrepreneur in cash, which will make it possible to purchase new equipment and build a new plant to replace worn-out old ones. In other words, all parts of capital will return to their original natural form and complete a full turnover in value.
Competition, which has intensified under HTP conditions, forces entrepreneurs to renew fixed assets before their physical wear and tear expires. The growing threat of obsolescence of equipment has led to the spread of the practice of accelerated depreciation, which makes it possible to form a fund for the replacement of fixed capital in 3-5 years. This becomes possible due to the fact that not only parts of the cost of fixed capital actually transferred to the product due to physical wear and tear, but also a certain share of profit are allocated to the depreciation fund. This practice makes it possible to reduce taxable profits, avoid the risk of obsolescence and depreciation of fixed capital, and generate significant self-financing resources necessary for the further development and modernization of production. In many countries, the practice of accelerated depreciation is encouraged by the state in order to renew fixed assets.
In Russia in the 90s. XX century There was an intensive aging of fixed assets. The depreciation rate of fixed assets (as a percentage of their total value) in industry has increased from 36% in the 80s. to 48.5% in 1995. For many industries, the wear rate in 1996 was even higher: in the oil refining industry - 61%, in the chemical and petrochemical industry - 59.7%, in the fuel industry - 52.6%. The average age of production equipment in industry was 8.42 in 1970, and in 1996 it was already 14.9. In 1996, 64.3% of equipment was more than 10 years old versus 30% in 1970 d. As for equipment under 5 years of age, its share in 1996 was only 8.7%, whereas in 1970 it was 40.8%.
The renewal rate of fixed assets (introduction of new assets as a percentage of the total value of fixed assets) decreased from 6.0% in 1990 to 1.5% in 1996. The retirement rate (liquidation of fixed assets as a percentage of their total value) was in 1996 g. also 1.5%. This means that, due to new funds, it is difficult to maintain the previous size of the country's fixed assets.
Working capital. Tangible carriers of working capital are, as a rule, objects of labor (raw materials, materials, fuel) and labor power functioning in the production process.
Objects of labor are consumed entirely in their natural form during one production cycle and completely transfer their value to the finished product. After the sale of goods, the value of the objects of labor returns to the entrepreneur in cash with each circulation of capital. Next, the items of labor are reimbursed in kind to ensure the next production cycle. Low-value means of labor (small tools), which are completely consumed in the process of one circuit, complete their turnover in a similar way. Such elements of means of labor can also be classified as working capital.
Labor power in the production process does not transfer its value to the product either immediately or gradually. It creates new value. However, in terms of the nature of turnover, variable capital does not differ from working capital. The cost of labor reproduced during one production cycle, after the sale of the goods, returns to the entrepreneur in cash and can be used to hire labor in the next production cycle.
It should be noted that productive capital, both fixed and circulating, includes only its material elements and labor power that actually function in the production process. Such a phenomenon as purchasing materials, semi-finished products, components, equipment for future use does not fit into the practice of rational economic management and leads to the death of capital and a decrease in the speed of its turnover. The spread of contractual relationships that guarantee deliveries to the day and hour allows a modern enterprise to work “on wheels” with a minimum supply of raw materials and supplies.
The process of capital consumption and the efficiency of its use can be quantitatively characterized by calculating the following indicators (see table)
Calculation of indicators
Capital turnover- a repeating process in which capital moves from one form to another until it returns to its original form. In one turnover, capital: passes from the monetary form into the form of labor power and means of production, then the production process occurs, then the goods are sold, and the capital returns to the monetary form.
Functional forms of capital at these stages:
1.Money
2.Production
3.Commodity
The second stage relates to the sphere of production, the first and third - to the sphere of circulation.
Industrial capital - capital that is involved in this circuit, moves from one form to another.
The turnover period of capital is the period of time during which all capital alternately passes through the three stages described above and returns to monetary form.
The rate of capital turnover is calculated by the number of complete turnovers per year. Accelerated turnaround can be achieved by reducing delivery times and/or production times. Another factor influencing the turnover rate: the ratio with which capital is divided into fixed and working capital. Increasing the rate of capital turnover allows you to increase the efficiency of its use and increase profits.
An entrepreneur invests and puts capital into production not for the sake of making a one-time profit, but for the purpose of continuously increasing capital value. This becomes possible thanks to the very form of movement of production assets - the form of circulation. The circulation of capital ends in the same physical form as it began, and therefore can be repeated again and again.
The circulation of industrial capital (production assets), considered as a continuously repeated process, forms its turnover. Capital turnover assumes that all advanced capital will increase in value and return in its original physical form.
The time during which this process takes place is called capital turnover time. The turnover time depends on the specifics of the investment industry. In heavy industry, capital turns over, as a rule, more slowly than in light industry. For every entrepreneur it is not indifferent how soon the capital will complete its turnover. In order to reduce turnaround time, measures are taken to rationally organize the production process to eliminate downtime. Technological innovations play a major role in speeding up production processes such as drying wood, painting and drying products, catalyzing chemical reactions, etc. Reducing turnaround time also depends on the efficiency of logistics, the time of transportation of products and the speed of their sale on the market.
If we compare the turnover time of capital with some conventionally accepted unit, for example with a year, we will get an idea of the number of turnovers made by capital per year. This indicator will characterize capital turnover rate. So, if the capital turnover time is 4 months, then the turnover rate is 3 turnovers per year.
Different elements of production assets make their turnover differently. From this point of view, productive capital is divided into basic And negotiable(fixed and working capital).
Main capital. Tangible carriers of fixed capital are, as a rule, means of labor: industrial buildings, machines, equipment. The means of labor participate in the production process as a whole, but transfer their value to the product in parts as they wear out physically. This determines the characteristics of the turnover of fixed assets. In the course of turnover, there is a kind of bifurcation of their value. One part, transferred to the product, enters the circulation process, completes the circuit and returns to the entrepreneur in cash after the product is sold. As this part of the cost accumulates, it forms a fund for the replacement of fixed capital, or a depreciation fund.
The other part exists in the form of the residual value of the means of labor that continue to function in the production process. As wear and tear and amortization proceed, the residual value will decrease and the replacement fund will increase. The turnover of fixed capital will be completed when all parts of its value have completed their circulation and returned to the entrepreneur in cash, which will make it possible to purchase new equipment and build a new plant to replace worn-out old ones. In other words, all parts of capital will return to their original natural form and complete a full turnover in value.
Competition, which has intensified under the conditions of the scientific and technological revolution, forces entrepreneurs to renew fixed assets before their physical wear and tear expires. The growing threat of obsolescence of equipment has led to the spread of the practice of accelerated depreciation, which makes it possible to form a fund for the replacement of fixed capital in 3-5 years. This becomes possible due to the fact that not only parts of the cost of fixed capital actually transferred to the product due to physical wear and tear, but also a certain share of profit are allocated to the depreciation fund. This practice makes it possible to reduce taxable profits, avoid the risk of obsolescence and depreciation of fixed capital, and generate significant self-financing resources necessary for the further development and modernization of production. In many countries, the practice of accelerated depreciation is encouraged by the state in order to renew fixed assets.
In Russia in the 1990s, there was an intensive aging of fixed assets. The depreciation rate of fixed assets (as a percentage of their total value) in industry increased from 36% in the 1980s to 48.5% in 1995. For many industries, the depreciation rate in 1996 was even higher: in the oil refining industry - 63% , in the chemical and petrochemical industry - 59.7, in the fuel industry - 52.6%. The average age of production equipment in industry was 8.42 years in 1970, and in 1996 it was already 14.9 years. In 1996, 64.3% of equipment was more than 10 years old compared to 30% in 1970. As for equipment under 5 years old, its share in 1996 was only 8.7%, while in 1970 it was 40.8%.
The renewal rate of fixed assets (introduction of new assets, as a percentage of the total value of fixed assets) decreased from 6.0 in 1990 to 1.5 in 1996. The retirement rate (liquidation of fixed assets, as a percentage of their total value) was in 1996 .also 1.5. This means that, due to new funds, it is difficult to maintain the previous size of the country's fixed assets.
Working capital. Tangible carriers of working capital are, as a rule, objects of labor (raw materials, materials, fuel) and labor power functioning in the production process.
Objects of labor are consumed entirely in their natural form during one production cycle and completely transfer their value to the finished product. After the sale of goods, the value of the objects of labor returns to the entrepreneur in cash with each circulation of capital. Next, the items of labor are reimbursed in kind to ensure the next production cycle. Low-value means of labor (small tools), which are completely consumed in the process of one circuit, complete their turnover in a similar way. Such elements of the means of labor can also be classified as working capital.
Labor power in the production process does not transfer its value to the product either immediately or gradually. It creates new value. However, in terms of the nature of turnover, variable capital does not differ from working capital. The cost of labor reproduced during one production cycle, after the sale of the goods, returns to the entrepreneur in cash and can be used to hire labor in the next production cycle.
It should be noted that productive capital, both fixed and circulating, includes only its material elements and labor power that actually function in the production process. Such a phenomenon as purchasing materials, semi-finished products, components, equipment for future use does not fit into the practice of rational economic management and leads to the death of capital and a decrease in the speed of its turnover. The spread of contractual relationships that guarantee deliveries accurate to the day and hour allows a modern enterprise to work “on wheels” with a minimum supply of raw materials and supplies.
B. BEHAVIOR OF AGENTS IN THE MARKET FOR FACTORS OF PRODUCTION
- See: Russian statistical yearbook. 1997. M., 1998. S. 339, 340.
To calculate the balance sheet of an enterprise. It is these numerical characteristics that are an indicator of the profitability and well-being of the company.
Fixed and working capital are the components of the capital of an enterprise, which represents financial, material and intellectual values that are the property of the company and serve in the process of activity to make profit. The entrepreneurial idea of the company founder also determines the required amount of capital.
It is known that no company can be formed and begin to operate without initial capital, which is put into circulation at the very beginning. The successful launch of an entrepreneurial idea and the retention of a competitive position in the market by the new business depend on its correct calculation and planning of all financial transactions at the initial stage. Therefore, a novice businessman, when planning the process of implementing his undertaking, should carefully estimate the acceptable minimum and maximum possibilities of the financial resources available and necessary to achieve the goal. The mandatory amount of initial capital is determined depending on the industrial sector in which the business idea is expected to be implemented.
When calculating the required initial capital, the distribution of it into working capital and fixed capital is of great importance. During planning, it is also very important to determine which mandatory element when calculating initial capital.
What does the division into fixed and working capital mean?
Main capital
It includes buildings, land plots, transport, equipment, tools, machines, innovative property, patents, licenses.
That is, this is the movable and immovable property of the company, which has a specific value determined using depreciation methods accounting for a given time period. Fixed assets take part in the production process for several years and transfer their value to finished products or the product is delivered in stages over several years.
Working capital
In concept working capital includes everything that is planned to be used by employees of the enterprise, as well as for production or sale.
Fixed working capital has the following components:
Cash (salary fund, cash, the amount of money for the purchase of raw materials, materials or goods);
Materials (non-durable tools, manufacturing materials, raw materials, products or purchased goods for sale).
Ratio of working and fixed capital
When determining the structure and ratio of the parts of working and fixed capital, it is necessary to take into account the proportional correspondence of all parts in its total volume. These miscalculations have great importance when choosing to purchase a building for office and production workshops or retail space and equipment. If you do not take into account the spent finances to the amount of money left for working capital, that is, raw materials, goods for sale, money for their purchase, funds for salaries of employees, then the company may simply “suffocate” at the very beginning, that is, stop its activities. Therefore, the larger the scale of the enterprise’s work is planned, the greater the need for an increased amount of working capital.
Depending on the industrial sector, fixed and working capital also have different ratios. It is determined depending on the complexity, material intensity, and labor intensity of the manufactured product.
Capital cannot be understood as something frozen, “as a thing at rest.” It makes a constant movement, a kind of circulation. Any capital invested in production begins its movement with the advance of a certain amount of money (D) for the purchase of means of production (SP) and labor power (PC), which are used for the purpose of production (P) of certain goods, including surplus value in commodity form ( T").
After the sale of created goods, the initially advanced capital returns to its owner, bringing him surplus value in money form (D"). The described movement of capital, which includes its advance, use in production, sale of goods and return to the original money form, forms it circuit, which can be written as follows:
D - T...P...T" - D".
The movement of capital within the circuit breaks down into three stages. At the first stage, capital appears in monetary form and is used to purchase the necessary means of production and labor on the market. At the second stage, the production process and the creation of surplus value in the form of a commodity are carried out, and capital is represented by a productive form. At the third stage, where the increased capital appears in commodity form, the sale of produced goods and the appropriation of surplus value take place. Upon completion of the circuit, capital again acquires a monetary form. In order for the production process to be continuous, each individual capital must simultaneously be in all three forms, and in a certain quantitative proportion.
Since the immediate goal of capital is not to obtain a one-time profit, but to systematically increase it, the movement of capital is not limited to one circuit. The circulation of capital, considered not as a single act, but as a constantly repeating process, represents the turnover of capital.
The time during which the initially advanced value, passing through the sphere of production and the sphere of circulation, returns to its original form, increased by the amount of surplus value, is the turnover time of capital. The rate of capital turnover is measured by the number of turnovers it makes per year. In the process of turnover, functioning capital is divided into fixed and circulating capital.
Fixed capital is that part of productive capital (buildings, structures, machinery, equipment and other means of labor) that is fully involved in production and transfers its value to the newly created product in parts.
Working capital is that part of productive capital that is consumed in full physical fitness during one production cycle and completely transfers its value to the created product and returns entirely to the capitalist in cash during one cycle. One part of the objects of labor undergoing processing loses their previous consumer value and takes on a new one. Cotton-yarn-fabric. Other elements of working capital: feed, seeds, fuel, electricity - they are not materially included in the created product and disappear as they are consumed, but their value is included in the cost of the created product. By the nature of turnover, working capital also includes wage. capital cycle economic
The criterion for dividing capital into fixed and working capital is not physical properties elements of productive capital, but differences in the method of transferring value to newly created goods.
In the process of use, fixed capital is subject to moral and physical wear and tear. Physical wear and tear is the process of loss of use value by elements of fixed capital. It is determined by a number of factors, primarily the duration and intensity of use of machinery and equipment, and also occurs under the influence of natural forces: under the influence of heat, cold, water, wind.
Obsolescence means the loss of fixed capital part of its value, which does not have time to be transferred to the cost of the created product due to the acceleration of scientific and technological progress. There are two types of obsolescence. The first is that the same in their technical specifications machines begin to be produced at lower costs due to increased labor productivity in manufacturing industries. The social value of such machines falls, so older, more expensive machines of this design depreciate and do not have time to transfer their value to the product. Obsolescence of the second type is associated with the appearance of equipment of the same purpose, but of a more advanced design, which makes it possible to reduce labor costs per unit of production. As a result, functioning equipment is partially depreciated.