Working capital is necessary for the economic activity of the enterprise in the short term and is directed towards:

· procurement of raw materials, materials and components;

· investments in finished products;

· covering the difference between accounts receivable and accounts payable;

· short-term financial investments (shares, bills, etc.).

Short-term financing is often used to finance working capital. Requirements for working capital are differentiated depending on the industry of the enterprise. Working capital is almost always subject to seasonal or cyclical fluctuations, so its size and composition depends on the working capital management strategy, as well as the enterprise’s product portfolio. Short-term financing has the following characteristics:

· provided for a period of less than one year;

· requirements for financial support are more lenient (security in the form of inventories or customer debt);

· has flexibility - can be repaid ahead of schedule;

· short-term loans are risky for the company - rescheduling is not guaranteed;

· the cost of postponing the loan repayment period may be high.

Sources of working capital financing

Division of sources of working capital into own and borrowed is carried out under the following conditions. Internal sources cover the enterprise's basic resource needs, ensuring continuity of production and sales of products and services. External sources cover the additional need for the formation of seasonal reserves of raw materials, materials, components, finished products, and cover production costs.

Figure 2.

An enterprise can provide internal financing from existing working capital through better management, namely:

· reduce accounts receivable (adjust relationships with buyers and customers, ensure or improve control over accounts payable, make efforts to collect overdue accounts receivable);

· provide longer credit to suppliers;

· reduce the level of material inventories (make economical purchases of raw materials, produce products not for storage, but to order).

Sources of internal financing include profit, consumption fund and reserves.

Sources of external financing

There are various sources of external financing for working capital.

The most widespread are:

· Russian banks - short-term loans, factoring, transactions with bills of exchange;

leasing companies - property rental;

· investment funds - transactions with bills of exchange, factoring;

· enterprises - trade credit, tolling, bill payments, mutual settlements;

· state - offsets, deferment of tax payments.

· shareholders - calculations of dividends.

Forms of short-term external financing

Short-term bank loans

Short-term loans are provided to enterprises on a fee basis. For this purpose, loan agreements are concluded with banks, which reflect the conditions for the intended use of credit resources, their security, urgency and payment.

Commercial banks provide short-term loans for a period of less than one year under:

· secured by the client’s property and valuables;

· under the guarantee or surety of a third-party legal entity or individual.

There are blank loans that are provided to prime borrowers without a guarantee or surety. As security for loan repayment, banks accept the client’s property owned by him, with the exception of property the sale of which is prohibited. When lending secured by property, not only its balance sheet value is taken into account, but also its market or liquid value, which takes into account the possibility of quick sale of goods, securities, currency, etc. Short-term bank financing can be divided into overdraft funds and short-term bank loans.

Overdraft characteristics:

· the cost depends on the actual amount and term of the overdraft;

· financing amounts may exceed existing collateral;

· flexibility, ease of contract extension.

Characteristics of a short-term loan:

· less flexible than overdraft;

· more expensive.

The cost of an overdraft depends on the amount of funds at the borrower’s disposal at any given time, and the cost of a bank loan remains constant for the entire period of validity of the loan agreement. Therefore, an overdraft is economically beneficial compared to a short-term loan, but it is available only to a limited number of highly reliable and stable enterprises. To obtain short-term loans, the borrower provides the bank with the following documents characterizing his solvency:

· financial statements (balance sheet, profit and loss statement), on the basis of which profitability, liquidity, turnover and other financial ratios are determined.

· a feasibility study or business plan that would reveal the essence of economic activity and confirm the efficiency of resource use.

· a marketing plan, according to which the level of risk is assessed in terms of the feasibility of the event or project being financed by the enterprise as a whole.

Trade credit

This loan is provided in commodity form by suppliers in the form of a deferment payment for goods sold in the ordinary course of business. This form of loan is one of the most common in Russia. Trade credit appears to be free at first glance, but it contains costs for the supplier to invest in receivables. The supplier, as a rule, includes these costs in the price, which depends on market conditions and on the mutual agreements of the parties. In cases of payment for goods on delivery or in advance, as a rule, the supplier provides significant discounts, so before accepting a trade credit, it is necessary to determine the size of this discount and compare this financing option with other forms.

Tolling is work on "supplied raw materials". This is a way for the processor to receive raw materials at no cost to the processor and then return the final product to the supplier. The supplier rewards the processor for the work. Remuneration can be in the form of cash or in the form of finished products. A processing enterprise can resort to tolling if it currently does not have other means of financing and methods of purchasing raw materials and wants to continue production activities, as well as load production capacity, making non-tolling operations more profitable.

A bill of exchange is a written promissory note of the form established by law, issued by the borrower (issuer of the bill) to the creditor (holder of the bill), giving the latter the right to demand from the borrower payment of the amount specified in the bill by a certain date. Traditionally, bills of exchange are issued to issue a trade loan and are used as a cash equivalent for current payments in the event of a shortage of “live” funds. In addition to issuing its own bills of exchange, an enterprise can use bank bills of exchange for settlements with suppliers. An enterprise, carrying out transactions with bank bills, can receive the following benefits:

· an enterprise that has received a loan in the form of a bank bill can remove the problem of solvency, because a bill of exchange from a stable bank is more liquid than a bill of exchange from the enterprise itself;

· bank bills contribute not only to resolving the problems of non-payment of the enterprise, but also to increasing working capital.

The investor's benefit from purchasing bills consists of:

· savings on tax payments: tax on income received on a bill is 15%;

· liquidity of investments due to the urgency of the bill, as well as the presence of the bill market, where it is possible to sell bills or account for them in the bank;

· the ability to pay their own obligations;

· the ability to pledge them and get a loan.

Factoring

Sale of company receivables to financial an institution known as a factor company. The transaction of selling receivables at a discounted price to a specialized company - factor - or financial institution in order to obtain funds. When selling goods on credit, the seller can receive immediate payment from the factoring bank with a discount of 15-50%, depending on the creditworthiness of the buyer and the quality of the goods. The main advantage of factoring is ensuring the turnover and liquidity of funds.

Mutual settlements

Mutual settlements are monetary obligations between enterprises that are repaid supply of goods or services involving two or more parties. Despite the fact that mutual settlements are not monetary transactions, any acceptance of goods from one party to the other is equivalent to a short-term loan.

Just like mutual settlements, barter involves the repayment of money. obligations between enterprises for the supply or exchange of goods. In Russia, barter transactions are one of the main sources of financing. The volume of barter transactions in Russia accounts for more than half of sales among the country's largest enterprises.

Short-term leasing

Short term rentals can reduce investment by investing in equipment needed by the enterprise for a limited period. Optimal financing of working capital depends on the quality of management, which must ensure the availability of the required amount of working capital. The required volume of working capital is understood to be such a size that would be minimal, but quite sufficient to ensure normal economic activity in a specific period of time.

Strategies for financing current assets

In the theory of financial management, it is customary to distinguish various strategies for financing current assets, depending on the manager’s attitude to the choice of sources of coverage. There are 4 known models of behavior: ideal, aggressive, conservative, compromise. The choice of one or another financing strategy model comes down to allocating the appropriate share of capital, i.e. long-term sources of financing.

The ideal model is built based on the essence of the categories “current assets” and “short-term liabilities”. The model means that current assets coincide in size with short-term liabilities, i.e. net working capital is zero. In real life, such a model practically never occurs, because A business always needs a certain amount of cash to maintain current expenses. From a liquidity perspective, this model is the most risky, because An enterprise may be faced with the need to sell part of its fixed assets to cover current accounts payable. The essence of this strategy is that long-term capital is used as a source of covering non-current assets, i.e. numerically coincides with their value.

The aggressive model means that long-term capital serves as a source of covering non-current assets and the minimum that is necessary to carry out business activities. From a liquidity perspective, this model is also risky, because in real life it is impossible to limit yourself to only a minimum of current assets. Since permanent sources of financing in this case are only sufficient to cover the minimum of current assets. With this model, there is a relatively high current profit (since the costs of maintaining current activities are minimal) and there is a high risk of losses from not receiving possible income when demand for products increases.

The conservative model assumes that part of current assets is covered by long-term liabilities.

The compromise model is considered the most realistic. Current assets are financed from long-term sources.

Long-term financing is considered from the perspective of the enterprise development strategy. The success of the current activities of the enterprise is largely determined efficiency management of short-term assets and liabilities.

In the theory of financial management, it is customary to distinguish various strategies for financing current assets, depending on the manager’s attitude to the choice of sources to cover their varying part, i.e. to the choice of the relative amount of net working capital. There are four known models for financing current assets: ideal, aggressive, conservative, compromise . The choice of one or another financing strategy model comes down to allocating the appropriate share of capital, i.e. long-term sources of financing, which are considered as sources of covering current assets. In other words, the algorithm for calculating the amount of net working capital as the difference between long-term sources to cover non-current assets and the value of these assets can be specified by various balance sheet equations, which precisely express the essence of a particular strategy for financing current assets. For clarity, we will also use a graphical representation of the balance.

Consider the static and dynamic representations of each model given.

Ideal model (Fig. 3.11) is based on the categories “current assets” and “short-term liabilities” and their mutual correspondence. The term “ideal” in this case does not mean an ideal to which one should strive, but only a combination of assets and sources of their coverage based on their economic content.

The model means that current assets coincide in size with short-term liabilities, i.e. net working capital is zero. In real life, such a model practically does not occur, since it is obvious that at any stage of its activity an enterprise needs a certain amount of cash to support current expenses. In addition, from a liquidity perspective, it is the most risky, since under unfavorable conditions (for example, due to current circumstances it is necessary to pay off most of the creditors at a time), the enterprise may be faced with the need to sell part of its fixed assets to cover current accounts payable. The essence of this strategy is that long-term capital is used exclusively as a source of covering non-current assets, i.e. numerically coincides with their value.

Rice. 3.11 Ideal model for financing current assets:

VA – non-current assets; OA – current (current) assets; SOA – system part of current assets; VOA – varying part of current assets;

KP – short-term liabilities; DP – long-term liabilities (borrowed capital);

SK – equity capital; DIF – long-term sources of financing (capital)

The company does not have net working capital (NWC):

NOC = OA – CP = 0.

Non-current assets are covered by long-term sources of financing (equity plus long-term liabilities):

VA = SK + DP.

The disadvantage of the ideal model is the high risk of liquidity of the enterprise, since the lack of free cash creates a threat to the solvency of the enterprise. Long-term capital is used exclusively to cover non-current assets.

From the dynamic presentation of the balance sheet (see Fig. 3.11, b) it is clear that over time the balance sheet currency was constantly changing: non-current assets and the systemic part of current assets increased (note that the same rates of change in these assets presented in the graph are conditional). The value of the varying part of current assets was constantly changing, both upward and downward, which could be caused, in particular, by seasonal factors. At time t 1, the value of current assets reached a minimum level; at time t 2 – maximum. However, as the static presentation of the balance sheet shows (see Fig. 3.11, a), in any case, the strategy remained unshakable - all current assets are covered by short-term liabilities.

The most realistic is one of the following three models of the strategy for financing current assets (Fig. 3.12 - 3.14), which are based on the premise that to ensure liquidity, at least non-current assets and the systemic part of current assets must be covered by long-term sources of financing (capital).

Thus, the difference between the models is determined by which sources of financing and in what proportion are chosen to cover the varying part of current assets .

Rice. 3.12 Aggressive model for financing current assets:

a – static representation; b – dynamic representation

Aggressive model (Fig. 3.12) means that long-term capital serves as a source of covering non-current assets and the systemic part of current assets, i.e. the minimum required to carry out business activities. The basic balance equation (model) will look like:

CHOC = SOA + SOA – CP = SOA.

The aggressive model means that long-term capital (SC + DP) serves as a source of covering the VA and the system part of current assets (SOA), that is, the minimum that is necessary to carry out business activities.

Rice. 3.13 Conservative model for financing current assets:

a – static representation; b – dynamic representation

The varying part of current assets (CA) is fully covered by short-term liabilities, since permanent sources of financing (SC) are only sufficient to cover the minimum current assets, that is, their systemic part. During the peak season, the company may not have available funds to finance additional inventory needs. In other words, there is a high profit and risk of loss from business interruption.

Conservative model (Fig. 3.13) assumes that a varying portion of current assets is also covered by long-term liabilities. In this case, there is no short-term accounts payable, and there is no risk of loss of liquidity. Net working capital is equal in size to current assets (NWO = OA). Of course, this model is also artificial. This strategy involves setting long-term liabilities at a level given by the following basic balance sheet equation (model):

NOC = OA – CP = OA – 0 = OA;

OA + VA = DP + SK.

The conservative model is characterized by the fact that there are no current liabilities. Liquidity risk is practically zero. This model is characterized by small profits, since the company is forced to incur additional costs to maintain excess inventory, instead of investing free cash in circulation and receiving additional profit. Let us also note that the conservative model, in principle, is not economically profitable, because in this case the enterprise, as it were, refuses accounts payable, which, in a certain sense, is a free source of financing.

Compromise model (Fig. 3.14) is considered the most realistic. In this case, non-current assets, the systemic part of current assets and approximately half of the varying part of current assets are financed from long-term sources. Net working capital is equal in size to the sum of the system part of current assets and half of their variable part:

NER = SOA + 0.5 · SOA.

Of course, at certain points in time, an enterprise may have excess current assets, which negatively affects profits, but this is considered as a payment for maintaining the risk of loss of liquidity at the proper level.

Rice. 3.14 Compromise model for financing current assets:

a – static representation; b – dynamic representation

This strategy involves setting long-term liabilities at a level given by the following basic balance sheet equation (model):

NER = SOA + SOA – TP = SOA + 0.5 * SOA.

The compromise model is a model in which non-current assets, the systemic part of current assets and 1/2 of the varying part of current assets are financed from long-term sources.

The compromise model is the most realistic, as it allows you to combine a small risk with a loss of liquidity.

Example

Calculate various options for the strategy for financing working capital according to those given in table. 3.4 data. In Fig. Figure 3.15 presents the dynamics of changes in the value of the enterprise’s assets, as well as possible options for the strategy for financing its current activities.

Table 3.4 Data for determining the working capital financing strategy In thousands of rubles

	Current assets (forecast)	Fixed assets	Total assets	Minimum need in sources	Seasonal need in current
September

Solution:

1) The system part of current assets represents the minimum requirement for working capital and is equal to 8 thousand.

R. (according to July data).

2) The minimum need for sources of funds is 68 thousand rubles. in June, maximum – 76 thousand rubles. in October.

3) Line 1 (see Fig. 3.15) characterizes an aggressive strategy in which long-term sources of financing cover non-current assets and the systemic part of current assets. In accordance with this strategy of the enterprise, its long-term capital should be 68 thousand rubles. The remaining need for sources of financing is covered by short-term liabilities. In this case, the net working capital will be:

68 – 60 = 8 thousand rubles.

4) Line 2 characterizes a conservative strategy, according to which long-term liabilities are maintained at the maximum required level, i.e. in the amount of 76 thousand rubles. In this case, the net working capital will be:

76 – 60 = 16 thousand rubles.

5) Line 3 characterizes a compromise strategy, according to which long-term sources of financing are established in an amount that covers non-current assets, the system part of current assets and half of the forecast value of the varying part of current assets, incl. in the amount of 72 thousand rubles. In this case, the net working capital will be:

72 – 60 = 12 thousand rubles.

Rice. 3.15 Various strategies for financing current assets

3.6 Methods of medium- and short-term financing

Methods of short-term financing of the company include: short-term bank loans and accounts payable .

One of the most promising types of commercial lending is the use of promissory notes and bills of exchange of enterprises. A promissory note issued by a company can serve as a means of payment in a chain connecting several enterprises. Since a bill of exchange issued by an enterprise is considered less reliable than a bank bill, the liquidity of such financial instruments is often maintained by the bank in the form avalya – a bank guarantee to pay the bill in case of non-repayment by the company that issued the bill. Applying to the bank for an aval can be carried out both at the time of issuing the bill, and at any stage of its circulation as a means of payment.

The role of banks in the circulation of bills of exchange of enterprises is not limited to issuing guarantees; banks can also provide accounting (early repayment) of bills, participate in the preliminary selection of participants in the bill of exchange conglomerate.

When using a company's bill of exchange, not only the problem of short-term financing is solved, but also there is a significant reduction in travel time and money. Indeed, if firm A owes firm B, and firm C, in turn, owes A, then A can issue a bill to C with a request to pay it to firm B. In this case, instead of the flow of funds from C to A and then from A to In B there is a single movement from C to B.

Bank lending can be carried out in various forms:

· urgent loan;

· current credit;

· call loan;

· accounting credit;

· acceptance credit;

· factoring;

· forfaiting.

The procedure for lending to an enterprise by a bank, processing and repayment of loans are regulated by the loan agreement. To obtain a loan, the borrower submits the necessary documents to the bank:

· an application indicating the purpose of obtaining a loan, the amount and period for which it is requested;

· constituent documents of the borrower;

· financial statements;

· card with samples of signatures and seals.

Depending on the results of the analysis of the provided documents, a loan agreement is concluded under certain conditions, which specifies the type of loan, the amount and repayment period, interest on the loan, the type of loan security, and the form of transfer of the loan to the borrower.

Urgent loan – the most common form of short-term lending, when the bank transfers the agreed amount to the borrower's current account. At the end of the term, the loan is repaid.

Current credit provides for the bank to maintain the client’s current account with payment of received settlement documents and crediting of proceeds. If the client’s funds are not enough to repay the obligations, the bank lends him within the amount established in the loan agreement, i.e. A current account can have both a debit and a credit balance. There are special overdraft accounts when the bank lends to the client in excess of the amount established by the loan agreement.

Overdraft(from English " overdraft") - a debit balance on a passive account that arises when making a payment in an amount exceeding the previously existing credit balance. This is a short-term form of credit, which is provided by the bank writing off funds from the client’s account in excess of its balance. As a result of such an operation, a debit balance is formed - the client’s debt to the bank. The bank and the client enter into an agreement that sets the maximum overdraft amount, the terms of the loan, the repayment procedure, and the interest rate for the loan. With an overdraft, all amounts credited to the client’s current account are used to repay the debt. Therefore, the amount of credit changes as funds become available, which distinguishes an overdraft from a regular loan. An overdraft is a practically unsecured (blank) loan, so it can only be used by fairly reliable clients well known to the bank.

On call loan is a type of current account and is issued, as a rule, against the security of inventory items or securities. Within the limits of a secured loan, the bank pays all the client’s bills, receiving the right to repay the loan at its first request using funds received into the client’s account, and if they are insufficient, by selling the collateral. The interest rate on this loan is lower than on term loans.

Accounting(bill of exchange)credit provided by the bank to the bill holder by purchasing (discounting) the bill before the due date for payment. The holder of the bill receives from the bank the amount specified in the bill minus discount interest, commission payments and other overhead expenses. Closing of the loan is carried out on the basis of the bank’s notification of payment of the bill.

There are other forms of lending using bank bill. For example, a business may purchase a bank bill at a price below par and use it as a means of payment. The last company in the chain will present the bill of exchange to the bank at the right time for redemption and will receive the amount indicated in it. An enterprise that has purchased a bank bill receives an additional source of short-term financing (the difference between the face value of the bill and the amount paid for it), in addition, there is no failure of payments in the chain.

Factoring is one of the methods of lending trade operations, in which a specialized company (factor firm) acquires from the supplier company all rights arising from the moment the goods are delivered to the buyer, and itself collects the debt. Thus, the supplier is freed from credit risk associated with possible non-payment of debt. The supplier receives the majority of the amount (60–90%) for the delivered products from the factor firm immediately after shipment of the goods. The remainder is retained to cover the risk of non-payment. After receipt of payment, the blocked amount, minus interest and commissions of the factor firm, is paid to the supplier within the period determined by the factor agreement, regardless of the current financial situation of the buyer. This operation is quite expensive for the enterprise; In Western practice, there are often cases when losses amount to up to 50% of the amount of receivables.

There are different types of factoring. Open factoring is an operation when a company notifies its debtor about the participation of a bank (factoring company) in payment for transactions. In this case, a corresponding note is made on the invoices, and all payments are sent to the factoring company. At closed factoring debtors are not aware of the intermediary role of the factoring company. Factoring operations are most often concluded with a recourse clause, which leaves the factor the right to demand the company to reimburse the amount paid for receivables; this means that the credit risk is transferred to the supplier.

Despite its relative youth, factoring is very popular in the West.

Forfaiting in the broadest sense of the word means the assignment of certain rights. Forfaiting operations began to be carried out in the late 1950s - early 1960s as operations to acquire the right to claim for the supply of goods and services, to accept the risk of fulfilling these claims and to collect them. Currently, forfeiting most often refers to the discounting of a portfolio of bills against a certain amount of debt. A characteristic feature of this operation is the one-time purchase of bills and their uniform repayment over a certain time interval.

Forfaiting is usually used when lending foreign trade transactions in the form of purchasing commercial bills from an exporter, accepted by the importer, without recourse to the seller. In addition to commercial bills of exchange, the object of forfeiting transactions may also be other payment requirements for foreign trade transactions. The difference between forfaiting and the bill discounting operation is that in this case the buyer-forfaiter waives the right of recourse to the seller. The forfaiter assumes all risks entirely.

Figure 3.16 – General scheme of forfeiting operation: 1 – product; 2 – portfolio of bills; 3 – bills of exchange for accounting; 4 – bill amount minus discount; 5 – bills to be repaid; 6 – bill amount in successive payments

The general scheme of a forfeiting transaction is as follows (Fig. 3.16). An organization wants to purchase a product, but is unable to pay immediately

his. In this case, the means of payment can be a package of bills in an amount equal to the cost of the goods plus interest on the loan. The repayment periods of bills are evenly distributed over time, taking into account future receipts from the borrowing organization. After receiving a portfolio of bills of exchange, the selling organization takes it into account in the bank, receiving the price of the product. Since bills are issued for an amount exceeding the cost of the goods, the bank has a discount in its favor, determined by the interest on the loan.

The total cost of a forfeiting operation consists of the cost of a bank loan for a period equal to the maturity of the bills, a margin that takes into account the risk of this operation, and a processing fee.

TRAINING TASKS

1. The company plans to issue bonds with a nominal value of 1,000 rubles. with a repayment period of 20 years and a rate of 9%. The costs of selling bonds will average 3% of their face value. To increase the attractiveness of the bonds, they are sold at a discount of 2% of their face value. Income tax and other mandatory deductions from profits are 35%. It is necessary to calculate the cost of this source of funds.

Table 3.5 Initial data for calculation

Source of funds	Balance sheet valuation, thousand rubles		Interest or dividends paid k, %
short-term
long-term
Ordinary shares
Preference shares
retained earnings

4. The investor owns a share with a par value of 1 ruble. and for which he received dividends last year in the amount of 120%, or 1.2 rubles. Analysis of data for the last two years showed that the average annual growth rate of dividends is 50%. The minimum required rate of return on other investments is 0.8. Determine the theoretical value of the stock.

4. The company expects to increase its capital by $2 million in three ways, namely by issuing:

12 percent preferred shares for $2 million, par value – $100;

Common stock priced at $60 per share, expected dividends of $6 per share, expected dividend growth rate of 5% per year;

10 percent bonds for $2 million. For a period of 10 years, the par value of the bond is $1000.

The cost of issuing shares is 10% of their value. The costs of issuing bonds are 5% of their nominal value. Calculate the cost of each source, taking into account that the company's tax rate is 24%.

5. The company issued 10% debt obligations. What is the price of this source of funds if the company's income tax is 24%?

First of all, the company focuses on the use of internal (own) sources of financing. Authorized capital is the main source of the enterprise's own funds. The amount of the authorized capital of a joint-stock company reflects the amount of shares issued by it, and of a state and municipal enterprise - the amount of the authorized capital. The authorized capital is changed by the enterprise, as a rule, based on the results of its work for the year after making changes to the constituent documents. Additional capital includes: results of revaluation of fixed assets; share premium of a joint stock company; cash and material assets received free of charge for production purposes; budget allocations to finance capital investments; funds to replenish working capital. Retained profit is profit received in a certain period and not directed during its distribution for consumption by owners and staff. This part of the profit is intended for capitalization, i.e. for reinvestment in production. In its economic content, it is one of the forms of reserve of the enterprise’s own financial resources, ensuring its production development in the coming period. To cover the need for fixed and working capital, in some cases it becomes necessary for an enterprise to attract borrowed capital. Thus, borrowed capital, borrowed financial resources are funds and other property raised to finance the development of an enterprise on a repayable basis. The main types of borrowed capital are: bank loan, financial leasing, commodity (commercial) loan, bond issue and others. Borrowed capital is divided into: Short-term. Long term. As a rule, borrowed capital for a period of up to one year is classified as short-term, and more than a year is classified as long-term. External sources of financing can be either loans or securities (shares, bonds of an enterprise), their issue. External sources of financial resources are the own and borrowed financial resources attracted from outside, ensuring the development of the enterprise (issuing shares and bonds, attracting financial and trade credit, etc.). The structure of sources of working capital formation covers: own sources, borrowed sources; As a rule, the minimum requirement of an enterprise for working capital is covered from its own sources: retained earnings, authorized capital, reserve capital, accumulation fund and targeted financing. However, due to a number of objective reasons (inflation, growth in production volumes, delays in paying customer bills, etc.), the enterprise has temporary additional needs for working capital, as well as for fixed assets. In these cases, financial support for economic activity is accompanied by the attraction of borrowed sources: bank and commercial loans, loans, investment tax credit, investment contribution of enterprise employees, bond issues. Bank loans are provided in the form of investment (long-term) loans or short-term loans. The purpose of bank loans is to finance expenses associated with the acquisition of fixed and current assets. As well as financing the seasonal needs of the enterprise, a temporary increase in inventory, a temporary increase in accounts receivable, tax payments, and extra extraordinary expenses. Short-term loans can be provided by government agencies, financial companies, commercial banks, and factoring companies. Investment loans can be provided by: government agencies, insurance companies, commercial banks, underwriters, individual investors. Along with bank loans, sources of financing working capital are also commercial loans to other enterprises and organizations, registration in the form of loans, bills, trade credit and advance payment. Investment tax credit is provided to enterprises by government authorities. It represents a temporary deferment of tax payments by an enterprise. To receive an investment tax credit, an enterprise enters into a loan agreement with the tax authority at the place of registration of the enterprise. An investment contribution (contribution) of employees is a monetary contribution from an employee to the development of an economic entity at a certain percentage. The interests of the parties are formalized by an agreement or regulation on the investment contribution. The enterprise's needs for working capital can also be covered by issuing securities or bonds. A bond certifies the loan relationship between the bondholder and the person who issued the document.

When it comes to the working capital of an enterprise, financial managers primarily consider issues of its optimal size and ensuring turnover, and aspects of creating sources of financing, as a rule, fade into the background. Meanwhile, these are two sides of the same coin, because it is impossible to optimize the structure of working capital without optimizing the structure of its financing sources. If a balance is not found between them, the company will certainly become financially unstable.

From the article you will learn what funds to use to finance current assets, how to determine the optimal structure of sources of financing for working capital, and how to evaluate the effectiveness of the sources used.

CLASSIFICATION OF SOURCES OF WORKING CAPITAL FINANCING

The assets of any enterprise consist of current and non-current assets. To ensure that the operating cycle of the enterprise is rhythmic and its business is financially stable, the head of the financial service needs to ensure two equalities:

1. financing of current assets is carried out at the expense of own and/or short-term borrowed sources;
2. financing of non-current assets is provided by own and long-term borrowed sources.

It should be taken into account that the period of use of short-term borrowed sources should not be less than the period of the enterprise’s operating cycle. Otherwise, it will constantly lack working capital. If a company's operating cycle is more than one month, it should not use debt sources with a maturity of one month or less as a financing tool.

Non-current assets must first be financed from own funds, since they do not directly generate profit and for this reason cannot be a source of repayment of long-term borrowed funds.

FOR YOUR INFORMATION

It is permissible to use long-term loans as a source of financing non-current assets if the company’s performance indicators guarantee profit in an amount sufficient to repay long-term loans.

Let's take a closer look types of working capital financing sources, which the company can use:

Own funds

Own funds in the form of the authorized capital and additional investments of the owners serve as the basis for financing the company’s working capital at the time of its creation, since at the initial stage it is quite difficult to attract borrowed sources due to the high risk of investment. As the business develops, the profit received by the company increases the amount of its own funds and allows it to increase its financing.

Borrowed funds

Business growth makes the company more attractive to external investors, and at this stage, borrowed funds begin to be used as a source of financing for working capital. Borrowed funds primarily include bank loans and loans from other companies. To these we can confidently add the amount of commercial loans (deferred payments) from the company’s suppliers and factoring services, because in this case the company receives money from a bank or factoring company for products shipped to the buyer and pays interest for these services.

Involved funds

Raised funds are an average type of source between own and borrowed funds. On the one hand, it is a stable liability that is at the company’s permanent disposal. On the other hand, it does not belong to the company and at the same time is not formalized by contractual loan relations. That is why these funds are allocated to a separate group. Their size is constantly changing depending on the dynamics of the company's business.

Raised funds can be divided into external and internal. External funds include:

• short-term accounts payable to the company's suppliers;
• advance payments received from buyers of products or goods.

With some stretch, the minimum amount of a company's debt to the budget can be classified as external funds raised. The financing period here is quite short - from the day the tax is calculated to the day it is actually paid.

Main internal sources of working capital financing:

• wage arrears to staff;
• dividends not paid to founders/shareholders.

The volume of funds raised is calculated for each component(Table 1).

FOR YOUR INFORMATION

To increase the accuracy of calculating the average volumes of short-term accounts payable and advances from customers, you can sum up the amounts of these debts for each day of the billing period and divide the resulting amount by the number of days in the period.

DETERMINING EVALUATION CRITERIA FOR SOURCES OF WORKING CAPITAL FINANCING

It is impossible to effectively manage working capital without controlling the structure of its financing sources. In the process of economic activity, the components of working capital and its sources constantly change in volume, so in practice it is difficult to establish a relationship between them. Nevertheless, the head of the financial service can control the state of capital and the sources of its financing using economic formulas.

Let's imagine calculation formulas own working capital (JUICE):

SOK = OA - KZS - KZ,

SOK = SS + DZS - VA,

where OA is the company’s current assets;

KZS - short-term borrowed funds;

KZ - accounts payable;

СС - own funds;

DZS - long-term borrowed funds;

VA - non-current assets.

These formulas show what part of current assets is financed from the company's own funds. If we subtract the size of our own working capital from the total mass of current assets, we obtain the value of the share of current assets financed from borrowed and attracted sources.

To assess the structure and rationality of using sources of working capital financing The head of the company's financial service can use the following financial ratios:

Equity agility ratio = Own working capital / Equity capital.

Debt capital concentration ratio = Borrowed capital / Balance sheet liabilities.

Financial leverage = Debt capital / Equity capital.

Sustainable financing ratio = (Equity + Long-term loans and borrowings) / Balance sheet assets.

Interim coverage ratio = (Cash + Short-term financial investments + Short-term accounts receivable) / Short-term accounts payable.

Net Working Capital Ratio = Net Working Capital / Current Assets.

Solvency ratio for current liabilities = Current assets / Current liabilities.

For the purposes of analysis and management of the structure of working capital financing sources we recommend using debt balance, the meaning of which is to group short-term receivables and payables into comparable repayment periods and control over the correspondence of debt amounts in each group (Table 2).

Table data 2 show the total excess of accounts payable over accounts receivable.

If we compare the general indicators of debt, we can say that the source of financing for “receivables” is raised funds in the form of short-term accounts payable. However, analysis by repayment periods indicates a shortage of this source for groups of receivables with a repayment period of up to one month and over six months for a total amount of 1000 thousand. rub.

IT IS IMPORTANT

Using the debt balance, the head of the financial service can identify negative trends and take timely measures to eliminate them.

Let’s assume that for a group of debts with a repayment period of up to one month, accounts payable exceeds accounts receivable. In this case, the company can increase sales by providing more customers with a deferred payment for a period of up to one month or reduce the amount of accounts payable in this group by paying off loan debt.

If an excess is observed in terms of accounts receivable, then this indicates that the company has two opportunities to optimize sources of financing current assets:

• ensure an influx of short-term borrowed funds with a repayment period of at least a month (issue an overdraft);
• reduce the size of accounts receivable by reducing the share of sales with deferred payment.

A. A. Grebennikov, chief economist of the Rezon Group of Companies

The material is published partially. You can read it in full in the magazine

Working capital is necessary for the economic activities of the enterprise in the short term and is used for: purchases of raw materials, materials and components; investments in finished products; covering the difference between accounts receivable and accounts payable; short-term financial investments (shares, bills, etc.). Short-term financing is often used to finance working capital. Working capital is almost always subject to seasonal or cyclical fluctuations, so its size and composition depends on the working capital management strategy, as well as the enterprise’s product portfolio. Short-term financing has the following characteristics: provided for a period of less than one year; requirements for financial security are more lenient (security in the form of inventories or customer debt); has flexibility - can be repaid ahead of schedule; short-term loans are risky for the company - rescheduling is not guaranteed; the cost of rescheduling a loan can be high.

Sources of financing for working capital. The division of sources of working capital into own and borrowed capital is carried out on the following conditions. Internal sources cover the enterprise's basic resource needs, ensuring continuity of production and sales of products and services. External sources cover the additional need for the formation of seasonal reserves of raw materials, materials, components, finished products, and cover production costs. Sources of internal financing: An enterprise can provide internal financing from existing working capital through better management, namely: reduce accounts receivable (adjust relationships with buyers and customers, ensure or improve control over accounts payable, make efforts to collect overdue accounts receivable); provide longer credit to suppliers; reduce the level of material inventories (make economical purchases of raw materials, produce products not for storage, but to order). Sources of internal financing include profit, consumption fund and reserves.

Sources of External Financing: There are various sources of external financing for working capital. The most widespread are: Russian banks - short-term loans, factoring, transactions with bills; leasing companies - property rental; investment funds - transactions with bills of exchange, factoring; enterprises - trade credit, tolling, bill payments, mutual settlements; state - offsets, deferment of tax payments. shareholders - dividend payments.

Forms of short-term external financing: 1Short-term loans are provided to enterprises on a paid basis. For this purpose, loan agreements are concluded with banks, which reflect the conditions for the intended use of credit resources, their security, urgency and payment. Short-term bank financing can be divided into overdraft facilities and short-term bank loans. Overdraft characteristics: the cost depends on the actual amount and term of the overdraft; financing amounts may exceed existing collateral; flexibility, ease of contract extension. Characteristics of a short-term loan: less flexible than an overdraft; more expensive. The cost of an overdraft depends on the amount of funds at the borrower’s disposal at any given time, and the cost of a bank loan remains constant for the entire period of validity of the loan agreement. Therefore, an overdraft is economically beneficial compared to a short-term loan, but it is available only to a limited number of highly reliable and stable enterprises.

Trade credit. This credit is provided in commodity form by suppliers in the form of deferred payment for goods sold during the normal course of business. This form of loan is one of the most common in Russia. Trade credit appears to be free at first glance, but it contains costs for the supplier to invest in receivables. The supplier, as a rule, includes these costs in the price, which depends on market conditions and on the mutual agreements of the parties.

Tolling- work on customer-supplied raw materials. This is a way for the processor to receive raw materials at no cost to the processor and then return the final product to the supplier. The supplier rewards the processor for the work. Remuneration can be in the form of cash or in the form of finished products. A processing enterprise can resort to tolling if it currently does not have other means of financing and methods of purchasing raw materials and wants to continue production activities, as well as load production capacity, making non-tolling operations more profitable.

Bill of exchange- a written promissory note of the form established by law, issued by the borrower (issuer of the bill) to the creditor (holder of the bill), giving the latter the right to demand from the borrower payment of the amount specified in the bill by a certain date. Traditionally, bills of exchange are issued to issue a trade loan and are used as a cash equivalent for current payments in the event of a shortage of “live” funds.

Factoring The sale of a company's accounts receivable to a financial institution known as a factor company. The transaction of selling receivables at a discounted price to a specialized company - factor - or financial institution in order to obtain funds.

When selling goods on credit, the seller can receive immediate payment from the factoring bank with a discount of 15-50%, depending on the creditworthiness of the buyer and the quality of the goods. The main advantage of factoring is ensuring the turnover and liquidity of funds.

Mutual settlements- monetary obligations between enterprises, repaid by the supply of goods or services with the participation of two or more parties.

Barter Just like mutual settlements, barter involves the repayment of monetary obligations between enterprises by the supply or exchange of goods. In Russia, barter transactions are one of the main sources of financing. The volume of barter transactions in Russia accounts for more than half of sales among the country's largest enterprises.

Short-term leasing Short-term rentals can reduce investment by investing in equipment that the business needs for a limited period of time.

Optimal financing of working capital depends on the quality of management, which must ensure the availability of the required amount of working capital. The required volume of working capital is understood to be such a size that would be minimal, but quite sufficient to ensure normal economic activity in a specific period of time.

Related information.