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What is the difference between working capital cycle, net operating cycle and cash conversion cycle?

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تم إضافة السؤال من قبل SAI ANIMESH KUMAR N , Senior Manager, Credit , Ahli United Bank
تاريخ النشر: 2016/03/26
Mohamed Eid Ayoub
من قبل Mohamed Eid Ayoub , Credit Manager , Jaz Hospitality

I read the same article at the Small Business website, written by Marquis Codjia, Demand Media

http://smallbusiness.chron.com/relationship-between-working-capital-cash-conversion-cycle-25217.html

Vinod Jetley
من قبل Vinod Jetley , Assistant General Manager , State Bank of India

Working Capital

Working capital equals corporate short-term assets minus short-term liabilities. In financial terminology, “short term” refers to a time frame of 12 months or fewer. For example, a short-term debt becomes due within 365 days, and cash -- a short-term asset -- will serve in a company’s operations for the next 52 weeks. Working capital is a liquidity indicator that provides a glimpse into how much cash a business will have in its coffers for the next 12 months. When finance people talk about current assets and liabilities, they mean short-term resources and debts.

Cash Conversion Cycle

A company’s cash conversion cycle consists of the operational journey a transaction takes to generate money for the business. It starts with the review and background check of a potential customer, the evaluation of the client’s financial standing and creditworthiness, and the credit approval for a specific transaction or a series of deals. After a company ships merchandise to the patron, accounting managers record the underlying receivable, also known as a customer receivable or account receivable. The corporate cash conversion cycle also goes through the receipt of customer funds as well the collection and recovery efforts -- when it comes to customers’ default, near insolvency or bankruptcy.

Cash conversion cycle and  net operating cycle are the same.

Ahmed Mohamed Ayesh Sarkhi
من قبل Ahmed Mohamed Ayesh Sarkhi , Shared Services Supervisor , Saudi Musheera Co. Ltd.

wait more details from experts

 

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