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The difference between the firm's operating cycle and its cash conversion cycle. - Essay Example
Finance & Accounting
Pages 3 (753 words)
An operating cycle of a company is the average period of time which a business takes for the acquisition of goods and the receipts of cash due to sale of these goods. …
It would only include time for the initial payment of cash by the company and the receipt of cash from the customers. Operating cycles are either short or long and both of these have serious implications for the company. An operating cycle which is short would mean that the company`s return on investment is rapid. A longer operating cycle, on the other hand, means that the company is not getting a quick return on investment and this probably affect the company in the long run. Operating cycles also differ according to the nature of the economy. If there is an economic downturn, then the operating cycle of a company would probably last longer than the one during a period of an economic growth. The operating cycle of a company is also helps in the estimation of the amount of the working capital required by the company to maintain its growth. There are a number of factors influencing the duration or the time period of the operating cycle and these include the payment terms extended to the company by its suppliers. ...
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