Capital turnover is an economic process in which working capital takes the form of a commodity equivalent or means of production, and then returns to its monetary equivalent. The purpose of turnover: profit and an increase in working capital. The movement of capital takes place during a certain period of time, within which the entire advance value passes through the stages of production and circulation .
Features of capital turnover
As an economic category, widely used in modern business practice, capital turnover is characterized by the following main features  :
- The turnover of capital is the most important condition for its functioning in the economic system, ensuring the constant generation of income or self-growth of its value. If capital had not made a constant turnover in the process of its use with the modification of specific forms, it could not bring income to its owner.
- Capital turnover as a process of its constant movement is characterized by certain repeated cycles. The cycle of capital turnover is understood as the process of complete completion of the cycle of its individual forms, as a result of which the advanced capital in the process of its economic use returns in its original form. Taking into account the above concept, the turnover of capital in the process of its use can be viewed as a set of constantly recurring of its circulation (its circulation) or as a constant change of individual cycles of its turnover).
- In the composition of each full cycle of capital turnover (or the complete cycle of its circulation), its separate stages are distinguished. The stage of turnover (turnover) characterizes the period of capital in one of its specific forms before its transformation into a different functional form. Features of the economic use of various types of capital determine the specificity of the content of its turnover cycles in the context of individual stages (forms of functioning in the process of individual acts of the circuit). The most significant differences in the stages (forms) of the circuit are inherent in the capital used in the production and investment process.
- Capital used in the production process (as a factor of production), during its circulation, operates in three main forms - monetary, productive and commodity.
Forms of capital turnover
Capital exists in various forms:
Initially, it acts in cash. This is money capital, its role (function) is to create the necessary conditions for the production of material goods. Having money, an entrepreneur acquires the necessary factors of production in the market: labor power, means of production, and a land plot. Another form of capital is productive capital, whose function is the rational consumption of acquired factors in the production process; the creation of goods with a public use value and a value containing surplus value and profit. The third form of capital is commodity capital, its role and function is in the realization of the goods produced and the value and surplus value contained in them, that is, the transformation of commodity capital into money.
The duration of capital turnover is influenced by the following main factors:
- Ratio of fixed and working capital
- The ratio of active and passive parts of production fixed assets
- Working capital structure
- Used methods and depreciation rates for fixed assets and intangible assets
- Average duration of the production (operating) cycle
- The ratio of real and financial investment
- Stage of the commodity market conjuncture, which determines the intensity of sales of products.
Capital turnover time
Capital turnover time is the time from the beginning of the advance value movement to the time it is returned to the entrepreneur in the same form, but increased by the value increment value. Includes production time and circulation time, collectively forming the capital turnover time . The time of capital production has the following components:
- working period (the period of the direct impact of labor on the product being created);
- time of natural breaks in work;
- stock storage time.
- Warrad L. (2013), p. 117
- Suryopratomo B., Komariah S. (2013), p. 4-5
- Passarella M., Baron H. (2013), p. 18
- Passarella M., Baron H. (2013), Capital’s Pons Asinorum: the Rate of Turnover in Karl Marx’s Analysis of Capitalist Valorisation, "University of Leeds", p. 18
- Suryopratomo B., Komariah S. (2013), The Influence of Capital Structure and Working Capital Turnover on Profitability, "Widyatama University", p. 4-5
- Warrad L. (2013), The Impact of Working Capital Turnover on Jordanian Chemical Industries’ Profitability, "American Journal of Economics and Business Administration 5 (3)", p. 116-119 (117)
Author: Valeriia Nezdolii