What do you mean by operating cycle of working capital
material/resources into finished goods or services
including the credit period involved for selling
In simple language.
Suppose a business buy raw material on 1st jan and it takes
one month to convert this raw material into finished goods.
On 1st feb good are ready for sale i.e. stocked at
warehouse on 1st march goods are sold and on 1st april
payment is received. Now this revenue will be used to buy ...more
Investment in working capital is influenced by four key events in the production and sales cycle. These events are: purchase of raw materials, payment for their purchase, the sale of finished goods, and collection of cash for the sales made.
Definition of operating cycle
The time lag between the purchase of raw materials and the collection of cash for sales is referred to as the operating cycle for the company.
The time lag between the payment for raw materials purchases and the collection of cash from sales is referred to as the cash cycle.
Operating cycle of the company ...more