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OPERATING CYCLE

Introduction
operating cycle is the number of days a company takes in realizing its inventories
in cash. It equals the time taken in selling inventories plus the time taken in recovering
cash from trade receivables .It is called operating cycle because this process of
producing.

Definition
The operating cycle is the average period of time required for a business to make
an initial outlay of cash to produce goods, sell the goods & receive cash from customers
in exchange for the goods. This is useful for estimating the amount of working capital
that a company will need in order to maintain or its business.

operating cycle in a trading firm is the length of time


required
1. To convert cash into inventory of finished goods.
2. To convert inventory of finished goods into receivables.
3. To convert receivables into cash.

operating cycle in a manufacring firm is the length of


time required
1. To convert cash into inventory of raw materials.
2. To convert inventory of raw materials into work in progress.
3. To convert inventory of raw materials into work in progress into finish goods.
4. To convert inventory of finish goods into receivables.
5. To convert receivables into cash.
operating cycle breaks dawn into the following parts
Lead time how long in advance you have to order the materials you need to
produce the product.

Production time the amount of time it takes to make the produce the service
once all marerials are received.

Sales time the amount of time it takes to sell the produce once it been produced.
Delivery time - the amount of time it takes to deliver the produce to the customer
after it sold.

Cash collection time - the amount of time it takes to receive cash from the
customer after product is sold & delivery.

operating cycle formula

operating cycle age of inventory + collection period

CONCLUSION
The Presentation works has help to know to what is operating cycle , this study as
understand the cash cycle is how to work in operating cycle and cash is important
to the inventory of goods how to cash use in business is knowledge about in this
presentation.
NAME : Tushar Sunil Gaikwad

STD :M.Com Part-I

DIV :C

ROLL No : 117

SUBJECT : Financial Management(114)

PRESEATION TOPIC : Operating Cycle.

COLLEGE NAME :B.Y.K College of Commerce