Any industrial enterprise goes through a cycle of operating activities, during which inventories are purchased, finished products are produced and sold for cash or on credit, and, finally, accounts receivable are repaid through the receipt of funds from customers. This cycle is called the operating cycle. The operating cycle reflects the period of time during which current assets complete a full turnover.

Figure No. 1. The relationship between production and financial cycles

Included operating cycle There are several components:

Inventory turnover cycle (production cycle) is the average time (in days) required to transfer inventories from the form of materials (raw materials) into finished products and their sale. Thus, the production cycle is a period of time that begins from the moment materials are received at the warehouse and ends when finished products made from these materials are shipped to the buyer.

The accounts receivable turnover cycle is the average time required for customers to repay accounts receivable resulting from credit sales.

The accounts payable turnover cycle is the average time that elapses from the moment an enterprise purchases inventories until the payment of accounts payable.

Based on the above components, the financial cycle is calculated.

Financial cycle- this is the gap between the payment deadline for one’s obligations to suppliers and the receipt of money from buyers (debtors). In other words, it characterizes the period of time during which a full turnover of own working capital is made.

Financial cycle = Production cycle + Accounts receivable turnover period - Accounts payable turnover period

The reduction in operating and financial cycles over time is considered a positive trend. It can occur due to the acceleration of the production process (the period of storage of inventories, reducing the duration of production of finished products and the period of their storage in the warehouse), accelerating the turnover of accounts receivable, slowing down the turnover of accounts payable.

In banking practice operating cycle is considered as:

Operating cycle = Inventory turnover + Accounts receivable turnover - Accounts payable turnover (in days)

The operating cycle characterizes the total time during which financial resources are deadened in and. Since the company pays supplier bills with a time lag, the time during which funds are diverted from circulation, that is, the financial cycle, is reduced by the average time of circulation of accounts payable. The reduction in operating and financial cycles over time is considered a positive trend. If a reduction in the operating cycle can be achieved by accelerating the production process and accounts receivable turnover, then the financial cycle can be shortened both due to these same factors and due to some non-critical slowdown in accounts payable turnover.

Task 2

Topic: Commercial cycle and EC entry strategies

Purpose of the work:

· teach to identify subjects and objects of commercial activity;

· consolidate an understanding of the general commercial cycle of the enterprise’s activities and previous (subsequent) stages;

· learn to formulate the content of the commercial cycle for any type of activity;

· consolidate the content, input and output entities of each stage of the commercial cycle within e-commerce;

· consider the implementation of various strategies for entering the EC, the advantages and disadvantages of each of them compared to related strategies.

Work assignment:

1. Read a brief description of the entity’s activities within the framework of e-commerce;

2. Answer the questions:

§ Who or what is the subjects of commercial activity/objects of commercial activity;

§ What are the requirements for clients (what do they need to interact with the seller);

§ Are there any stages in the activities of entities that are not related to e-commerce, but related to e-business;

3. Draw up a commercial cycle diagram for this type of activity;

4. Reveal the content of the main stages of the commercial cycle and their implementation from the point of view of the seller and the buyer;

5. Make an assumption about running a similar business within the OFF-LINE (traditional) model and using e-commerce technologies to implement individual stages of the cycle. Describe the resulting options;

6. Identify the advantages and disadvantages of the business options proposed in paragraph 5 compared to related options

Commercial cycle and EC entry strategies

Option 1

The Orion company produces a variety of stationery products (pencils, pens, notepads, calendars, paper clips, clips, staples, stickers, weekly planners, posters, etc.) and distributes them between its own stores, which independently pre-order the required product , and also accepts orders from third-party companies. Orders can include both simple orders from the catalog of any type of product in the required quantity, and the development of a special configuration, design and other characteristics at the request of the customer. In this regard, specific orders are processed and controlled by managers at all stages of approval of parameters. After final registration, the client has the opportunity to view the details and total cost of the order and make a calculation both in the traditional way and on the website. Upon payment, the order is delivered to the client. At all stages, the client has the opportunity to track the status of the application.

Option 2

The Ukrainian Souvenir LLC company is an online store without offline support. The online store offers a wide range of souvenir products from Gzhel and ceramics made in Ukraine. The company works with several large factories. Well-established relationships with suppliers allow you to conduct business without using your own warehouse (products are supplied directly from the manufacturer’s warehouse), which significantly reduces the company’s costs. Delivery of goods to the client is carried out either by courier or by mail (state or “ExPost” DHL). Payment for goods can be made in the following ways: cash on delivery (when delivering goods by mail), cash (when delivering goods by courier), electronic cash (webMoney, Yandex money). If the client chooses the courier delivery method, the buyer must confirm the order (the system generates a notification that is sent to the buyer’s e-mail). In other cases, the goods are delivered upon payment.

Option 3

Internet auction "Aukro". On the site by an individual who has reached the age of 18, or a business entity registered by the state in the prescribed manner. The auction is organized as follows: the individual seller posts information about his lot (photo, description) on the website. The interested party offers his price. One lot is offered for sale for a limited time. The auction can take place either directly between the seller and the buyer (with self-organization of delivery), or through a third party - an auction manager who organizes the auction and delivery of the goods, while receiving a certain percentage. Payment for goods is carried out through Internet payment systems (WebMoney, Yandex-money) or using credit cards (other payment methods are possible by mutual agreement of the parties).

Option 4

The company DlyaVas LLC, which has launched a business on the Internet providing short-term loans online for making purchases in the amount of up to 5,000 UAH. right without leaving home. You, as an individual, can become its client by providing the required information about yourself and certifying the documents with an electronic signature. If your documents are successfully verified, you get the opportunity to use the loan in a form convenient for you - from direct payment of your bill in the online store to transferring funds to your wallet in the Web Money system or any other. All operations for the necessary paperwork are carried out directly through the website on-line. Also, subsequent settlements with the company are carried out through the website by crediting funds to its account in almost any settlement system of the network in the Ukrainian segment.

Option 5

On the website of the Kharkov city administration, individuals are given the opportunity to pay for utility services. When making payments, so-called “service” cards are used, which payers can purchase at branches of Sberbank, Privat Bank and Megabank. The payment system is organized as follows: the client registers on the website (opens an account), fills out a form identical to the payment form, enters the code from the service card (replenishing his account with a certain number of monetary units). Operations with service cards are carried out by the Bank of Communications, transferring money from the client’s account to the Sberbank account of the city administration.

Option 6

The company ZAO Start is engaged in placing investments for the implementation of high-tech projects in the service sector. Until now, interaction with potential borrowers was carried out in traditional ways via e-mail and paper documents. Recently, the company entered the Internet with the implementation of a full cycle of customer service from receiving an application to transferring credited amounts to clients and subsequent payment for the company’s services and settlements on issued loans and interest. At the same time, the client has the opportunity to quickly monitor the current repayment schedule, upcoming and credited payments, as well as interact with the company on the issues of conducting a periodic audit of the state of the client company and the implementation of the initial business plan.

Option 7

The Anubis company provides a full range of funeral services:

Hearse rental

Singumator services

Production and sale of ritual products (wreaths, baskets, monuments, fences, coffins, urns...)

Payment by citizens of Ukraine is made in hryvnias at the rate of the National Bank of Ukraine on the date of payment. For foreign citizens, payment must be made in foreign currency (US dollars or EURO):

Payment methods:

- Bank transfer. An invoice and instructions are sent electronically by e-mail or fax for payment for services. Payment can be made at any bank in Ukraine. The bank transfer fee is paid by the company.

- Money transfers using international systems. Western Union, CONTACT, MoneyGram, Migom, UNISTREAM, Anelik, LEADER, Bystraya Pochta, AVERS, PrivatMoney, VIGO, Coinstar Money Transfer, ALLURE. After making the transfer, you must provide the country, city, first/last name, transfer amount and transfer number. The commission for this translation is paid by the customer.

- WebMoney instant online payment system: WMU (hryvnia), WMR (Russian rubles), WMZ (US dollars), WME (euros).

- International electronic payment systems: PayPal, Moneybookers and VISA.

Option 8

Online store Electronic world offers the widest range of electronics and home appliances, goods for the home, repairs, garden,

Payment in Cash upon receipt of goods. By transfer of funds to a current account, or in cash at a branch of any bank. Plastic card VISA or MasterCard. You can pay for your order with a plastic card online. Ukrainian bank cards are accepted for payment. Through the WebMoney Transfer payment system. By transferring funds to a current account, in cash at a branch of any bank through IBOX (self-service terminals through which you can make instant transfers in cash in hryvnia).

In Kharkov, the goods can be picked up at the store that you specified when placing the order or ordered to be delivered by courier to your home. Delivery by courier is most often carried out the next day after placing an order (if the product is in stock) or the next day after the product arrives at the warehouse (if the product is ordered).

Delivery throughout Ukraine is carried out by the transport company “Novaya Poshta”.

Examples of reports

option

Report on completed work:

1.1 Answers to questions

Commercial cycle diagram

1.3 Detailed content of the stages of the commercial cycle

1.4 Brief description of similar business under various options

1.5 Advantages and disadvantages of each of the described options compared to related ones

Conclusion

option

Report on completed work:

1.1 Answers to questions

Why do you need profit?

Profit is needed by a commercial organization to develop production in order to satisfy further, including new, needs. It is directly invested in the development of production or serves to stimulate investors. Enterprises must implement a rational policy in the field of distribution of the net profit remaining at their disposal after paying taxes and interest on loans. In joint stock companies, for these purposes, they develop dividend policy society, which is considered primarily as a decision to finance investments.

Dividend policy does not relate directly to commercial activities and is one of the functions of strategic management of an enterprise. But it decisively depends on the results of the search for needs, the satisfaction of which the enterprise’s activities are aimed at.

Why do you need to search for needs?

The search for needs should answer the questions: where (in what market), what goods (or what property) and what volume is there a need? What are consumer requirements for products? How stable is the demand for certain goods? What are the demand growth prospects and profitability prospects in various markets? What is the intensity of competition on them? Depending on the answer to these questions, enterprises specialize or diversify their activities, determine the directions for the development of goods and technologies, develop their assortment policy, choose a strategy for growing the company’s potential, including the scale of production (intensive growth, limited growth, reduction, a combination of various strategies) , their marketing strategy and competition strategy in the market and when creating new products, carry out strategic planning and selection of strategic positions in competition. In turn, the choice of these strategies predetermines the field (set of areas) of the enterprise’s commercial activity.

Modern business system

A manufacturing enterprise (organization) has, as a rule, three areas (directions) of commercial activity (Diagram 1.1):

o area of production and commercial activity;
o area of trade turnover of production assets;
o area of capitalization of own funds and trade turnover of paper assets.

In each of these directions business cycle consists of three stages (Fig. 1.1):

o stage of cost optimization when purchasing objects of trade (production and trade) turnover;
o stage of formation of profitability potential;
o stage of optimization of sales profits.

These cycles are repeated, forming continuous process of commercial activity.

Rice. 1.1.

The stages of optimizing purchase costs and optimizing profits from sales relate primarily to commercial activities, although they are associated with production or scientific-production activities (for example, testing of technological equipment, raw materials and intermediate products when purchasing factors of production; customer service for sold goods). The stage of formation of profitability potential is predominantly scientific and production in nature (contains the functions of R&D, production, production development and (or) management).

Scheme 1.1.

Area of production and commercial activity

Production and commercial activities at the entrance to the production process are aimed at optimizing the costs of purchasing factors of production and innovations necessary to maintain and increase the profitability of the enterprise, as well as optimizing the management of inventories; at the exit from the production process - to optimize profits from sales of goods (provision of services, performance of work). The stages of the commercial cycle, in addition to the material flows shown in paragraph “a” of Diagram 1.1, have information connections that make the commercial process systematic. The algorithm of the production and commercial process is differentiated depending on the nature of the production development tasks - on whether the direct or inverse task is being implemented.

IN direct task of production development, characteristic of the industrial era (diagram 1.2), to satisfy the

Scheme 1.2.

F - commodity market conditions and technology markets: need, demand, quality requirements, profitability prospects; F - requirements for production factors and innovations (scientific and technical level, quality, volume, timing); @ - market conditions for production factors and innovations: opportunities to meet production requirements, cost; ® - opportunities to meet the requirements of the product market and technology market]!; © - selection of the optimal option to meet market requirements; © - selection of the optimal option to meet production requirements; F - flow of factors of production and innovation; ® - flow of goods and technologies.

Material connections; - information connections.

Based on existing and predicted needs, products are created using traditional technologies. Therefore, the production and commercial process begins with a study of the conditions of the commodity markets and technology markets in which the enterprise plans to sell its goods and the technologies it develops. (link 1 in diagram 1.2). To create the products necessary to meet these needs and achieve an acceptable profitability potential, in addition to its own projects, production factors and innovations for which the enterprise has certain requirements can be acquired (link 2). For this purpose, the conditions of the relevant markets are studied (link 3). The results of processes 1, 2, 3 allow us to evaluate possible options for meeting the requirements of the product market and technology market (link 4) and select the optimal (in terms of profit) option (connection 5), and on this basis choose the optimal (from a cost point of view) option for acquiring production factors and innovations necessary to form an acceptable profitability potential (link 6). These processes of production and commercial activity create the necessary prerequisites for the formation of an optimal flow of production factors and innovations (connection 7), as well as the optimal flow of goods and technologies (link 8).

IN inverse problem of production development, characteristic of the post-industrial era, when the demand for goods to satisfy existing needs is saturated, fundamentally new technologies and new goods are being created to instill and satisfy new needs. Demand for such a product will arise only if the potential consumer recognizes the usefulness of the proposed product for him. Therefore, in this problem, the production and commercial process (Diagram 1.3) begins with the enterprise offering to the market design options for new products and new technologies for their production (link 1 in diagram 1.3). This is followed by a forecast of their consumer acceptance, the level of demand for them and profitability prospects (link 2). This enables the enterprise to develop requirements for production factors in new technologies necessary to create profitability potential for each product option, the demand for which is confirmed by the forecast (connection U). For optimization

Scheme 1.3. Algorithm of the production and commercial process in the inverse problem of production development (version):

F - design options for new products and new technologies; F - forecast for the recognition of new products: possible demand, profitability prospects; F - requirements for production factors in new technologies; ® - market conditions for production factors: possible options for meeting requirements, purchase costs; © - selection of the optimal variant of a new product and market penetration strategy; © - selection of the optimal option for a set of production factors; F - flow of factors of production; ® - flow of new goods and technologies.

" - material connections; - information connections.

The numbers indicate the sequence of actions.

tion of the costs of purchasing factors of production, the conditions of their market are studied, possible options for meeting the requirements of the enterprise and the costs of purchase are identified (link 4). The results of studying the prospects for the profitability of new products from their sales and the possible costs of purchasing the necessary factors of production allow the enterprise to choose the best option for a new product and develop a market penetration strategy (connection 5), as well as the optimal set of production factors (link 6).

The financial circulation period is the most important reporting indicator of the enterprise's activities. He is called nothing less than production and commercial cycle. The concept includes two equivalent and interdependent components. Firstly, these are financial, and secondly, production activities.

Concept and features of the production and commercial cycle

The production and commercial cycle of a modern enterprise involves a complex structure of the supply of assets necessary for its activities. Material and intangible. Reserves that are used unevenly. Therefore, the calculation is carried out based on the average indicators of the following values:

The complete turnover of funds in time, as a rule, does not coincide with the production cycle. It largely depends on the specifics of the enterprise’s activities and its structural organization. For this reason, financial activity is considered to be the main indicator, by which the production and commercial cycle is determined. Materials involved and those in the process of continuous production activities are taken into account according to the procedures recommended by law.

Continuity of production is ensured by financial support from own funds, borrowed funds and loans from suppliers in the form of necessary materials and raw materials.

During the production process, finished products are accumulated and delivered to the consumer. Some of them are shipped on credit terms, from which the company’s total receivables are formed.

The list of products presented by production for individual items may have different demand. , and deliveries of individual assets may differ significantly in terms of timing from the overall performance of the organization and its production and commercial cycle. However, the analysis is done based on the results of the entire enterprise.

How to shorten the production and commercial cycle?

Good performance of successful companies around the world is based on compliance with the following rules:

Improving work with suppliers. Contracts are drawn up in such a way that materials are received in the required quantities by a precisely defined date.

Enterprise funds. Optimization and reasonable management of all cash flows. The best results are shown when the previous point is completed. There are no costs for storing excess amounts of raw materials, components and elements. Payment schemes include mostly regular payments, which allows you to plan long-term projects.

Loans and receivables. Making the most of all financial instruments, you can significantly increase capital turnover. An optimal system for placing orders and debt collection, including factoring, stabilizes the actual operation of the enterprise.

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Funds invested in certain types of current assets in the course of current activities sequentially go through all stages of the production and commercial cycle (PCC) and at each of them change their material form, again turning into cash. This movement reflects the circulation of current assets. The duration of one circuit varies in individual industries. However, the financial condition and, above all, the solvency of the organization in each field of activity depends on the speed of transition of certain types of working capital from one stage to another, i.e. on their turnover. Therefore, turnover indicators characterize the level of business activity of the organization and the efficiency of use of current assets.

Accelerating the turnover of working capital leads either to an increase in sales volume (with a constant volume of current assets) or to the release of funds from circulation, which will reduce the need for sources allocated to finance them. Consider the following hypothetical example.

Sales amount to 7,200 thousand rubles, the volume of working capital is 1,800 thousand rubles. The number of fund turnovers per year is 7200: 1800 = 4 times. Let's assume that the number of circuits has increased to 4.5 times. Then, to obtain the same volume of sales in each cycle, it will be necessary to involve working capital: 7200: 4.5 = 1600 thousand rubles, i.e. for 200 thousand rubles. less.

To assess the efficiency of using working capital, a system of general and partial turnover indicators is calculated.

Generalizing characterize the average duration of the circulation of funds invested in current assets. Therefore, to calculate them, data on the average cost of all working capital for the period is used. It is calculated using the average chronological formula:

– average value of current assets for the period; – balances of current assets at the beginning of the corresponding period; n– the number of terms in the numerator.

The indicator of total turnover (Tot) is sales revenue, since it is this that characterizes the final stage of the PCC - the return of funds back into cash.

There are three ways to measure the speed of movement of working capital:

1. Amount of turnover for the period (or turnover ratio –):

The coefficient shows how many complete turnovers were made by current assets during the analyzed period. The indicator should have an upward trend. However, it is not clear enough. Therefore, another calculation option is more often used.

Duration of one circuit in days ():

where is the number of days in the analyzed period.

The indicator characterizes the average period from the moment of acquisition of inventories (or goods) to receipt of proceeds from sales. This figure should tend to decrease. Its value can be obtained if the number of days in the period is divided by the number of revolutions:

Ratio of current assets to sales revenue (fixation ratio – ):

It shows how much working capital accounts for 1 ruble of products sold. The indicator is the inverse of the turnover ratio, so it should tend to decrease.

Indicators of total turnover of current assets are calculated and studied over a number of reporting periods and compared with similar indicators of related enterprises or with industry average values, which can be taken as a criterion when assessing the efficiency of using working capital and the level of business activity of the organization. The fact is that the indicators of this group cannot have a single standard criterion value acceptable for all areas of activity, since they, to a greater extent than any other indicators, reflect the industry, technological and other features of the functioning of the enterprise, which is expressed by different duration of the PCC . However, when making comparisons, it is necessary to take into account the differences in methods for valuing inventories, work in progress, etc.

The effect of changes in working capital turnover on sales volume is determined by the formula:

The relative release (involvement) of funds from circulation as a result of changes in turnover is calculated as follows:

∆ .

According to the analyzed enterprise, the average annual value of current assets was: in the previous year 1696 thousand rubles, and in the reporting year 2338 thousand rubles. Proceeds from sales are reflected in the “Profit and Loss Statement” (see Appendix 2).

In the example under consideration, working capital turnover is characterized by the following data:

Table 6.11. Characteristics of working capital turnover

The data presented indicate a slowdown in the turnover of current assets in the reporting year compared to the previous one. This required additional involvement of funds into circulation in the amount of 484.8 thousand rubles, as can be seen from the calculation:

The average turnover of all current assets depends on the speed of transition of each element or type from one stage of the PCC to another. To establish this relationship, a system of private turnover indicators is calculated. When calculating them, analytical accounting data is used to determine the average cost for the period of certain types of working capital, as well as indicators of private turnover. They are reflected in the credit of the account on which the corresponding element (type) of current assets is recorded.

Private turnover indicators are calculated using the formula:

where is the period of stay i-th type of current assets at this stage of the PCC; – private turnover indicator for a given element of working capital; – average cost i-th element of current assets.

For example, the private turnover of raw materials and materials shows the period of time that passes before they are written off for production, therefore the indicator of private turnover is the consumption of raw materials and materials for production (credit turnover for this account).

Private turnover indicators reflect not only the efficiency of using certain types of current assets, but also serve as the basis for calculating and analyzing the activities of the PCC.

To link the general and private turnover, the so-called total turnover terms are calculated. To do this, the average cost of individual types of current assets should be divided by one-day total turnover. The calculation formula is as follows:

The duration of the industrial production cycle is the period of time required for one cycle.

The production and commercial cycle includes the following stages:

· duration of funds in advances to suppliers;

· duration of storage of stocks;

· duration of the production process;

· storage duration of finished products;

· average repayment period of accounts receivable.

To calculate the cycle duration, we will use data on the average balances of individual elements of working capital and indicators of private turnover, which are given in Table 6.12.

Table 6.12 . Characteristics of private turnover of working capital

Average annual working capital balances	Amount, thousand rubles	Private turnover indicators	Amount, thousand rubles
at the beginning of the year	at the end of the year	at the beginning of the year	at the end of the year

1. Raw materials and semi-finished products. 2. Work in progress 3. Finished products in warehouse 4. Accounts receivable from buyers and customers 5. Advances issued to suppliers 6. Other current assets 7. Total current assets 8. Advances received 9. Accounts payable to suppliers			Consumption of raw materials and materials for production Cost of manufactured products Cost of shipped products Sales proceeds Purchases of materials, semi-finished products on an advance payment basis - Sales proceeds Sales proceeds on an advance payment basis Purchase of material assets	-

According to columns 5 and 6 of table. 6.12 we can judge the duration of individual stages of PCC.

Table 6.13. Changes in private working capital turnover indicators

These calculations show that the increase in the duration of the operating cycle by more than 23 days was mainly due to an increase in the storage period for stocks of raw materials by 18.8 days and finished products by 11.7 days, as a result of which the total turnover of working capital slowed down by 9 ,8 days 9.4 days. This necessitates a more in-depth analysis of the reasons for the accumulation of certain types of inventories of material assets and finished products. The diversion of funds into these assets became one of the reasons for the decrease in the liquidity and solvency of the organization.