The operating cycle is Operational, production and financial cycles of the organization

"Taxes and taxation", 2009, N 2

In accordance with paragraph 1 of Art. 374 of the Tax Code of the Russian Federation, the object of taxation for corporate property tax for Russian organizations is movable and immovable property (including property transferred for temporary possession, use, disposal, trust management, entered into joint activities or received under a concession agreement), accounted for on the balance sheet as fixed assets in the manner established for maintaining accounting.

It is the accounting of fixed assets that is the tool for determining the object of taxation by property tax and subsequently the tax base.

When accepting acquired assets as part of fixed assets, in practice, accountants apply the classic criteria for classifying objects as fixed assets provided for by PBU 6/01, namely:

a) the object must be intended for use in the production of products, in the performance of work or the provision of services, for the management needs of the organization or for provision by the organization for a fee for temporary possession and use or for temporary use;

b) the object must be intended for use for a long time, i.e. a period of more than 12 months;

c) the organization does not expect its subsequent resale;

d) the object is capable of bringing economic benefits (income) to the organization in the future<1>.

<1>Regulation on accounting "Accounting for fixed assets" PBU 6/01, approved by Order of the Ministry of Finance of Russia dated 30.03.2001 N 26n.

Such criteria in almost every organization are formulated in accounting policies.

However, among the criteria for classifying assets as fixed assets established by paragraph 4 of PBU 6/01, there is one, accounting for which will not allow a certain circle of organizations to attribute acquired assets to fixed assets (for example, construction organizations, organizations conducting scientific developments).

It should be recalled that for accounting purposes, use over a long period of time implies the establishment of a useful life, guided by paragraph 20 of PBU 6/01, based on:

• the expected life of this facility in accordance with the expected productivity or capacity;
• expected physical wear and tear, depending on the operating mode (number of shifts), natural conditions and the influence of an aggressive environment, the repair system;
• regulatory and other restrictions on the use of this object (for example, the lease term), and not on the basis of Decree of the Government of the Russian Federation of 01/01/2002 N 1 (as amended on 11/18/2006) "On the Classification of Fixed Assets Included in Depreciation Groups", which for the purpose of its application for accounting is recommended (clause 1).

The stumbling block in deciding whether to include assets in property, plant and equipment may be the length of the normal operating cycle, if it exceeds 12 months<2>.

<2>A similar rule is contained in s. "g" clause 3 of the Accounting Regulation "Accounting for Intangible Assets" (PBU 14/2007), approved by Order of the Ministry of Finance of Russia dated December 27, 2007 N 153n.

The discipline "Analysis of economic activity" defines the operating cycle as the average time interval between the moment of procurement of material assets and the moment of payment for sold products (goods) or services rendered. In other words, this is a period of time of constant circulation of working capital necessary for the organization.

In accordance with clause 4 of PBU 6/01, "the useful life is the period during which the operation of an item of fixed assets brings economic benefits (income) to the organization."

Clause 7.2.1 of the Accounting Concept in the Market Economy of Russia (approved by the Accounting Methodological Council under the Ministry of Finance of Russia) interprets economic benefits as "the potential ability of property to directly or indirectly contribute to the inflow of cash or cash equivalents into the organization." And this is just one of the components of the operating cycle.

It can be said that one of the conditions for accepting assets as fixed assets is to compare their useful life with the duration of the normal operating cycle, which reflects the average time interval between the moment of procurement of material assets and the moment of payment for sold products (goods) or services rendered.

If the period of time under consideration is less than 12 months, then the condition for accepting assets as fixed assets is the use of the asset for a period of more than 12 months.

If the time period under consideration is more than 12 months, then the condition for accepting assets as property, plant and equipment is that the asset is used for a period of a normal operating cycle that exceeds 12 months. At the same time, if the useful life of the acquired assets is less than the duration of the normal operating cycle, then the acquired assets should be considered as short-term (current) with their qualification as inventories. for example if an asset is acquired with a useful life of 25 months, and the organization's normal operating cycle is 30 months, then this asset, even if it has a significant cost estimate, must be included in inventory for accounting purposes (clause 19 PBU 4/99 )<3>.

<3>Regulation on accounting "Accounting statements of the organization" (PBU 4/99), approved by Order of the Ministry of Finance of Russia dated 06.07.1999 N 43n.

Mathematically, the duration of the operating cycle can be represented as a formula:

OC \u003d (DZ x T) / V + (Z x T) / C, (1)

where OC is the duration of the operating cycle,

DZ - average receivables for the period (in the amount of 1/2 of the sum of the final and initial balances of receivables according to the balance sheet),

T - time interval (90 days for the 1st quarter, 180 days for the half year, 270 days for 9 months and 360 days for the calendar year),

B - revenue (without VAT and excises on line 010 "Proceeds (net) from the sale of goods, products, works, services minus value added tax, excises and similar obligatory payments" of Form No. 2 of the Profit and Loss Statement),

Z - the average value of stocks for the period (in the amount of 1/2 of the sum of the final and initial balances of stocks according to the balance sheet),

C - cost (the sum of lines 020 "Cost of sold goods, products, works, services", 030 "Commercial expenses" and 040 "Administrative expenses" of Form No. 2 of the Profit and Loss Statement).

The normal operating cycle, as required by PBU 6/01, can be determined by the organization for a period of time equal to the reporting year preceding the date of the decision to include assets in fixed assets. The possibility of determining the duration of the operating cycle usual for the organization for a number of reporting periods with its subsequent averaging is not excluded.

This situation will be completely new to understanding for those organizations that have an increase in inventories and receivables, respectively, as well as a steady decline or unchanged revenue. In this case, the duration of the operating cycle will increase, and therefore, restrictions are objectively created by virtue of clause 4 of PBU 6/01 for accepting assets as fixed assets.

Example. Accounting statements for the first half of 2008 are characterized by the following data: reserves as of 01.01.2008 - 115 thousand rubles, as of 30.06.2008 - 220 thousand rubles. Accounts receivable as of 01.01.2008 - 530 thousand rubles, as of 30.06.2008 - 720 thousand rubles. Revenue for the first half of the year amounted to 190 thousand rubles, and the cost price - 100 thousand rubles. In July 2008, the organization purchased a computer for 40 thousand rubles, the useful life of which is 25 months.

According to formula (1), the normal operating cycle of an organization is:

PV = [(530 thousand rubles + 720 thousand rubles) / 2 x 180 days] / 190 thousand rubles + [(115 thousand rubles + 220 thousand rubles) / 2 x 180 days] / 100 thousand rubles = 893.6 days

Translating the result into months, we get 29.8 months (893.6 days / 30 days).

Therefore, the acquired asset (computer) cannot be classified as property, plant and equipment, since the period of its use does not exceed the duration of the organization's normal operating cycle.

Accounting for acquired assets as part of inventories for accounting purposes at the time of transfer of inventories to production increases the lump-sum costs for the production and sale of products (goods, works, services) and reduces the tax burden on corporate property tax, removing acquired assets using the above approach from non-current assets.

Bibliographic list for the article

1. Zrelov A.P. 1000 topical issues of the practice of applying the Tax Code of the Russian Federation. - M.: Yurayt-Izdat, 2007. 373 p.

One of the indicators that indicate the degree of "health" of the organization is the duration of the financial cycle. To calculate it, you will need data on the duration of the production cycle, as well as the periods of turnover of accounts payable and receivable. A decrease in this value in dynamics speaks of effective management decisions regarding the use of the company's working capital and makes it attractive in the eyes of banks and partners.

The financial cycle of the enterprise(English Cash Conversion Cycle) is a financial indicator that characterizes the length of time in days between the payment of accounts payable and the return of accounts receivable to the organization.

In other words, this is the number of days between the payment for raw materials and materials from our organization to suppliers and the receipt of money for the finished products shipped by us to customers.

Let us consider the details on the example of the agricultural enterprise Fermer LLC, which is engaged in crop production.

There are three main types of cycles:

1. operating cycle.

   It represents the time that passes from the purchase of raw materials and materials, such as seeds and fertilizers, to the receipt of cash for the products grown from them and sold. In this case, the date of purchase of raw materials may not coincide with the date of payment for it to the seller. This is how debt is created.

   Reference. Accounts payable is a debt to the party to the transaction, which is obligatory for repayment. It is commonly referred to as a "creditor".

   The day of shipment of finished products by Fermer LLC, for example, wheat, may also not coincide with the day of receipt of funds for it from the buyer. In this case, there is an account receivable.

   Reference. Accounts receivable is the debt of buyers for services rendered and goods shipped. It is commonly referred to as a "receivable".

2. Production cycle.

   The period of time from the receipt by Fermer LLC of raw materials and materials to the release of finished products and their placement in a warehouse. This indicator is associated with the movement of stocks from sowing seeds to harvesting the finished crop. The purchased seeds enter the warehouse in the form of raw materials, then, when sown, they are transformed into a work in progress (growing period), then, at the time of collection from the field, they become finished products and are placed in a warehouse for further sale.

   Important. The financial and production cycles of the enterprise, as a rule, are enclosed within the operating cycle.

3. financial cycle.

   The number of days of movement of exactly money from payment to suppliers to receipt of funds from buyers. While the funds of Farmer LLC are within this cycle, they are not exactly money in the usual sense. Money is locked inside the process. They cannot be removed without breaking the entire mechanism. They are considered working capital.

   Reference. Working capital is the funds that are involved and fully spent within one production cycle.

The formula for calculating the financial cycle:

Fin.Cycle (in days) = Production Cycle (in days) + POD - POKZ

PODZ - the period of turnover of receivables;

POKZ - the period of turnover of accounts payable.

Additional Information

The formula for calculating the production cycle:

PC = the duration of the technological cycle + the time of breaks + the period of natural processes

ARR = accounts receivable (amount at a certain date) : revenue: 365 (number of days in a year).

The formula for calculating the period of turnover of "creditors":

POKZ = accounts payable (amount on a certain date): purchase: 365 (number of days in a year).

On the example of the indicators of LLC "Farmer"

For example, in April, Fermer LLC began sowing corn, while it did not have its own funds for the purchase of seeds, fertilizers and fuel. I had to take raw materials “for harvest” from suppliers for 195 days. The field work was done, and after 6 months, in October, it was time to harvest. The CEO managed to negotiate with the buyer to sell all the corn at a bargain price, but with the condition that the money be received only 15 days after the product was shipped. In this case, the financial cycle is zero.

This is an example of perfect money management efficiency. Farmer LLC used borrowed resources in its activities exactly until the moment when it had to pay the bills. Fulfilled obligations to the supplier of raw materials and received a profit from the deal for the sale of the crop, without "freezing" their own money within the cycle.

If the CEO of Fermer LLC used only his own resources, he would not be burdened with the risks of non-repayment of debts, for example, in the event of a crop failure. In this case, the organization's money would be locked inside the cycle for 195 days - this is an example of an inefficient use of capital. In such cases, they say "did not take risks."

Positive and negative values ​​of the financial cycle

It is not correct to unequivocally state that a positive value in calculating the financial cycle is bad, and a negative value is good. This indicator is needed by the financial managers of the company to manage it.

If the index takes negative meaning, then this means that the organization has a lot of its own money, and it does not need to replenish working capital. It can even issue loans itself.

Sounds good and reliable, but it suggests that the organization minimizes risks, acts too cautiously, and therefore misses opportunities. Efficiency drops.

On the contrary, a positive value indicates a high dependence on creditors and debtors. Too much money trapped inside the cycle loses its liquidity.

If Farmer LLC finds itself in such a situation, then even small delays in payment from buyers will lead to a cash gap. This is tantamount to squeezing the blood artery of the business. You will have to borrow money from the bank or look for suppliers with even longer delays.

The ideal situation in the enterprise is achieved by optimizing accounts payable and receivable. Reducing accounts receivable without compromising customer service and loyalty, and increasing accounts receivable without the risk of worsening solvency.

Reference. Liquidity is the ability of assets to turn into money. For example, money as an asset is as liquid as possible, and an old warehouse building in the thicket of a forest is not very liquid, since it is almost impossible to sell it.

Who and for what calculates the financial cycle

This indicator is used by analysts and financiers to get the most accurate picture of the performance of the enterprise. It is interesting in conjunction with other ratios and indicators that allow us to draw a conclusion about the financial condition of a particular organization.

For example, many banks evaluate the financial situation of a potential borrower before issuing a loan. Information about the duration of cycles is also used by company managers to make management decisions.

Important: the indicator of the duration of the financial cycle is most interesting when assessed in dynamics. If, when analyzing several reporting dates, there is a tendency to increase its value, then this may indicate problems in relationships with partners. For example, debtors do not pay bills on time, or, conversely, the organization itself allows delays in the performance of obligations.

Tatyana Manets, Ph.D. in Economics, an auditor and consultant with fifteen years of experience, in her video talks about what a financial cycle is, what indicators are involved in its calculation and what can be revealed with its help.

Indicator unit: days

Explanation of the essence of the indicator

The operating cycle period (English analogue - Operating Cycle) is an indicator of business activity, which shows the time of transformation of the company's reserves into money. Thus, a company's operating cycle is the time between the purchase of inventory and the receipt of cash for goods sold or services rendered (money is received from both sales and receivables).

For example, a clothing store bought ready-made clothes and sold them to the customer for cash. The relatively short period of time between buying clothes and selling them reflects a short transaction cycle. Unlike a clothing store, a machine tool manufacturer first purchases materials and components, then direct production takes place, and then provides customers with deferred payment. As a result, the operating cycle for a machine tool manufacturer is significantly longer than that of a clothing store. There are industries in which this period exceeds a year, for example, in ship manufacturers.

The indicator is calculated as the sum of one inventory turnover and the average receivables repayment period.

Normative value of the operating cycle:

It is desirable to decrease the indicator during the study period. To determine the position of the company, it is advisable to compare the value with the main competitors. It is desirable that the companies that are selected for comparison are also approximately the same size (for example, if you compare the amount of assets).

Directions for solving the problem of finding an indicator outside the normative limits

A decrease in the value of the indicator can be achieved both by optimizing the production process and by increasing the efficiency of receivables management. Reducing the average receivables repayment period will reduce the duration of the operational process.

Operating cycle calculation formula:

The approximate value of the company's operating cycle can be calculated as follows:

Operating Cycle Period = One Inventory Turnover Period + Accounts Receivable Period (1)

This indicator can be broken down into components as follows:

Operating Cycle Period = (360 * Annual Average Inventory) / Cost) + (360 * Annual Average Accounts Receivable) / Revenue) (2)

When calculating the indicator, it is worth remembering that the turnover of inventories and receivables may be underestimated. If a company uses a classic business year (end of December 31) and the indicator is calculated based on the values ​​at the beginning and end of the year, then the indicators may not reflect the real situation. Therefore, it is desirable to use values ​​at the end of the month or business day.

Average annual inventory (best practice) = Sum of inventory at the end of each business day / Number of business days (3)

Average annual inventory (when only monthly data is available) = Sum of inventory at the end of each month / 12 (4)

Average annual inventory (when only annual data is available) = (Inventory at the beginning of the year + inventory at the end of the year) / 2 (5)

It is identical to calculate the average period of repayment of receivables.

Average annual amount of receivables (best way) = Amount of receivables at the end of each business day / Number of business days (6)

Average annual amount of accounts receivable (when only monthly data is available) = Sum of accounts receivable at the end of each month / 12 (7)

Average annual amount of receivables (if only annual data are available) = (Amount of receivables at the beginning of the year + amount of receivables at the end of the year) / 2 (8)

Example of operating cycle calculation:

JSC "Web-Innovation-plus"

Unit of measurement: thousand rubles

Operating cycle period (2016) = (360*(234/2+284/2))/ 3781+ (360*(405/2+341/2))/ 4517= 54.39 days

Operating cycle period (2015) = (360*(284/2+301/2))/ 3772+ (360*(341/2+254/2))/ 4509= 51.67 days

During 2015-2016, the operating cycle of JSC "Web-Innovation-plus" increased from 51.67 days to 54.39 days. A positive impact on the efficiency of the operational process was the continuous reduction in the duration of the production process. However, under the influence of a constant increase in the amount of receivables, the operating cycle has increased. Reserves for reducing the indicator must be sought in the field of receivables management. Optimization of the commodity lending policy will reduce the average annual amount of debt, which will lead to an increase in the company's financial performance.

• Solovieva Polina Andreevna, student
• Saint Petersburg State University of Economics

• DURATION
• OPERATING CYCLE
• PRODUCTION CYCLE
• FINANCIAL CYCLE
• WORKING ASSETS

Any enterprise goes through an operating cycle, which includes two more important components: the inventory turnover cycle and the money turnover cycle. The most important indicator of effective working capital management is the duration of these cycles.

• Improving the conditions for stimulating the environmental activities of the enterprise
• Assessment of the financial condition of the enterprise and ways to prevent insolvency
• Approaches to the optimal choice of the path of professional development

Regulation of the use of working capital of an enterprise is associated with certain characteristic features of the formation of its operating cycle, which in turn includes two other cycles: production and financial.

The duration of the cycles described above is the most important indicator of the effectiveness of current asset management.

Operating cycle- the time period from the acquisition of raw materials / materials to the payment of the invoice for the finished product.

Production cycle- the time period from the purchase of raw materials / materials to the acceptance of finished products that were produced from this raw material / materials.

financial cycle, which is also called the cycle of turnover of funds - the time stage from the payment of funds for raw materials / materials, which in turn is called the repayment of accounts payable, to the receipt of funds for sales of products (repayment of receivables).

The duration of the operating cycle shows the turnover of the company's working capital, and shows the number of days for the exchange of funds for raw materials / materials. This indicator is considered one of the main indicators of the effectiveness of working capital regulation.

To calculate this indicator, you need to sum up the period of turnover of receivables, the period of turnover of inventories and costs, the turnover ratio of receivables and the turnover ratio of inventories and costs.

Due to the increase in the duration of the operating cycle, there is an increase in the need for working capital, and a decrease, on the contrary, is a positive indicator, because this need is reduced as a result.

This need may be due to the following factors:

• Reducing the time of the production process
• Accelerating the turnover of receivables
• Slowdowns in the turnover of accounts payable

The calculation of the duration of the production cycle of the enterprise helps to estimate the time spent on the production of goods.

To calculate this indicator, you need to summarize the duration of the production cycle, the duration of technological processing, the duration of technological maintenance and the duration of breaks due to the hours of operation of the enterprise

The calculation of the duration of the money turnover cycle characterizes the number of days between accounts payable and receivable.

To calculate the duration of this cycle, you need to summarize the duration of the financial cycle, the duration of the inventory turnover, the duration of the turnover, receivables and the duration of the turnover of accounts payable.

Basic principles for improving the efficiency of used working capital

In order to improve the efficiency of current assets, it is necessary to ensure that the operating cycle of the company is reduced by reducing the production cycle and reducing the financial cycle.

The production cycle of the enterprise is reduced:

1. Due to the decline in the period of turnover of stocks of raw materials and materials.

Otherwise, either depletion of stocks occurs, which in turn leads to interruptions in this cycle, or vice versa, excess stocks accumulate, the efficiency of warehouse management decreases, unusable materials accumulate in the warehouse. After all, a company can keep large stocks of materials in stock precisely because suppliers cannot quickly provide the company with the necessary resources.

Also, this period largely depends on the company's policy in the field of supply of basic material resources.

2. Due to the reduction of the period of turnover of work in progress

This is one of the least targeted parameters, because it can be reduced mainly by violating the technological process of production, and this may affect the quality and the financial component of the company.

Sometimes, in order to reduce this indicator, a company can purchase new modern equipment, which, of course, will not do without consequences.

This will result in a large loss of funds for the company. That is, in order to reduce the need for current assets, the company will have to increase financial assets.

It is important to note that the investment costs can be significantly greater than the savings that the company will receive by reducing the need for current assets. In some cases, the company will be forced to work for more than one year before the cumulative effect of savings on current assets outweighs investment costs.

3. Due to the reduction of the turnover period for finished products/goods.

The company can influence this parameter by improving the quality of sales planning, as well as the efficiency of the implementation of the sales process itself.

Large inventories of finished goods/goods may be the result of a poor quality sales planning process. In this case, the company insures itself and keeps significant stocks in stock.

Improving the efficiency of the sales process can also have a positive effect on reducing the turnaround time of finished products. How faster company can sell its products, the shorter the period of its turnover.

The financial cycle of the company should occur due to:

• reducing the period of turnover of receivables;
• increase in the period of accounts payable.

It is important to resolve the issue not only with the reduction of receivables, but also its balancing with accounts payable.

It is possible that in order to reduce the turnover of receivables, the company will be forced to make concessions to customers, and in order to increase the turnover of accounts payable, it may be necessary to purchase resources from suppliers at less favorable prices, but with a delay in payment.

So, in order to improve the efficiency of working capital management, an enterprise needs to clearly monitor its operating, production and financial cycles. We need to learn to find opportunities to reduce all these cycles.

Figure 1. The relationship of cycles

Bibliography

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For the effective management of working capital of an enterprise, it is very important to monitor and be able to influence the three most important parameters that affect the need for financing: