Definition
Operating cycle measures the time between buying inventory and receiving cash from customers. It differs from cash conversion cycle by not considering how long the company takes to pay suppliers. Shorter operating cycles indicate more efficient operations.
Formula
Operating Cycle = Days Inventory Outstanding + Days Sales Outstanding
Example
91 days inventory + 50 days receivables = 141 days operating cycle. It takes 141 days from purchasing inventory to collecting cash from selling it.
FAQ
What is Operating Cycle?
Time from purchasing inventory to collecting cash from sales.
How do you calculate Operating Cycle?
A common formula for Operating Cycle is: Operating Cycle = Days Inventory Outstanding + Days Sales Outstanding
Why is Operating Cycle important?
Operating Cycle helps investors evaluate efficiency and make more informed decisions.