Question

What are a companies operating and cash cycles?

Answer 1

Operating cycle means the time taken by a company to make initial outlay of cash to supplier of raw material and to converting that raw material into finished products and sell that finished products and receive cash from its customer in exchage for the finished goods sold. The duration of operating cycle includes the payment terms a company extends to its customers and those extended to the company by it's suppliers.

Cash cycle means the time takes by a company to turn raw material purchased into cash. it starts when a company pays to buy raw material and end with recovery from customers. So a shorter cash cycle indicates that a company has more reliable access to cash and has more benefitial opportunities to use that cash.