Turnover of Circulating Capital

The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.

Turnover of Circulating Capital

 

the constantly renewed movement of circulating capital in the spheres of production and circulation. The turnover of circulating capital ensures continuity in the reproduction process of an economicaccountability (khozraschet) enterprise, association, or economic organization.

The term “turnover of circulating capital” refers to the length of one cycle of circulating capital. The turnover rate is an important indicator of the efficiency with which circulating capital is used, because it describes the velocity of turnover from the moment that physical assets are paid for until the monetary sums return to the bank account as payment for output sold. In Soviet industry during the early 1970’s the turnover period was about 70 days. Acceleration of the turnover of circulating capital provides a significant reserve for the expansion of production and the augmentation of the state’s financial resources.

The turnover of circulating capital is described in terms of the number of cycles of circulating capital. This number of cycles is defined as the quotient of the value of realized output and the average sum of circulating capital at the disposal of the enterprise or association during a certain definite period of time (year, quarter, and the like). The turnover is also described in terms of the length, in days, of one cycle of circulating capital. This length is defined as the quotient obtained from dividing the average sum of circulating capital multiplied by the number of days in the period (360 per year, 30 per month) by the wholesale value of the volume of output sold during the same period. The average sum of circulating capital is calculated on the basis of the total amount of such capital minus the balance of money in the enterprise’s bank account.

When turnover is accelerated, an enterprise needs less circulating capital for the same volume of output sold. Acceleration of the turnover of circulating capital is very important for the national economy because it reduces enterprise requirements for circulating capital and makes it possible to use monetary and material resources more efficiently. Circulating capital freed from production in one branch of industry may be used in other branches. Thus, the index of turnover of circulating capital reflects a whole set of economic processes, including acceleration of growth in labor productivity and decrease in the capital inten-siveness of production.

The chief factors involved in accelerating the turnover of circulating capital are reduction of the total length of the production cycle, improvement in production technology and organization, improvement in the system of supply to enterprises and marketing of output, and precision in the organization of billing and payments.

V. L. PERLAMUTROV

The Great Soviet Encyclopedia, 3rd Edition (1970-1979). © 2010 The Gale Group, Inc. All rights reserved.