Register now or log in to join your professional community.
Related cash flows to operating cycle is generation of positive cash flow by a company's normal business operations,which includes inventory turn over time,A/c receivable turnover by which a analyst could asses the company efficiency to meet their short term liabilities and is company able to generate sufficient positive cash flow to maintain and grow its operations.
This could calculate by inventory turn around time into cash again and what is the company strength to recover/receive its Accounts receivable. This is my understanding please also put your feedback for better understanding. thanks.
As we all know that the operating and cash cycles plays a vital role in any business. so every company try to maintain balance between both cycles so that its worth will be increase. so the parts related to that are payables, inventory as well as sales. after the the calculations if they found that they get back their money from a transaction earlier, that will be beneficial for any company.
The operating cycle is a "twin" of the cash conversion cycle. While the parts are the same - receivables, inventory and payables - in the operating cycle, they are analyzed from the perspective of how well the company is managing these critical operational capital assets, as opposed to their impact on cash.
the operating cycle is the time period from inventory purchase until the receipt of cash,
Operating cycle = age of inventory + collection period
the cash cycle is the time period from when cash is paid out, to when cash is received.
Cash cycle= (Average Stockholding Period) + (Average Receivables Processing Period) – (Average Payables Processing Period)
Together they are called as cash operating cycle. Both operating cycle and cash cycle plays a important role in working capital management.