Month End Glossary

Operating Cycle

The operating cycle is the time duration required for a business to purchase inventory, sell it, and collect cash from sales.

The operating cycle refers to the process a business undertakes to convert its inventory and other inputs into cash. It begins with acquiring inventory, transforming and selling these goods if necessary, and ends with the collection of cash from customers. For instance, a retail store’s operating cycle starts when they purchase stock and ends when payment is received for a sold item. The shorter the operating cycle, the more efficiently a business is able to operate, as it has its cash available for reinvestment quicker. Conversely, a longer operating cycle might indicate higher working capital requirements and possible cash flow issues.

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