operating cycle

Operating cycle is the time that a company takes between the purchase of an asset and its sale, or the sale of a product made from the asset.

A company with short operating cycle needs less money to maintain this operations, the company can grow  while can sell at relatively small margins, a short cycle allows a bussines to quickly get cash that can be used for addtional purchases or repayment of debt, companies try to lower the cash conversion cycle, accelerating the payment of customers and delaying payment to suppliers.

However, a long operating cycle can be a warning of accounts or inventories receivable, and reflect negatively on the real liquidity of the company.

The duration of operating cycle is a information that is useful for people who take decisions in the compnay, as well as potential investors who can consider the operating cycle to determine if they should invest in company.

Enlaces