1. What is the Operation Cycle?

The Operating Cycle measures the time it takes for a company to convert its inventory into cash. It represents the number of days between purchasing inventory and collecting cash from sales, calculated as the sum of Inventory Days and Receivables Days.

2. How Does the Calculator Work?

The calculator uses the Operation Cycle formula:

Where:

• \( \text{Inventory Days} \) — Average number of days inventory is held before sale
• \( \text{Receivables Days} \) — Average number of days to collect payment from customers

Explanation: The formula combines the time needed to sell inventory and the time required to collect receivables, providing a comprehensive view of the company's cash conversion efficiency.

3. Importance of Operation Cycle Calculation

Details: Calculating the Operating Cycle is crucial for understanding a company's working capital management, liquidity position, and operational efficiency. A shorter cycle indicates better cash flow management.

4. Using the Calculator

Tips: Enter Inventory Days and Receivables Days as positive numbers. Both values must be valid (≥0 days). The calculator will sum these values to determine the Operating Cycle.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Operating Cycle length?
A: A shorter Operating Cycle is generally better as it indicates faster conversion of inventory to cash. The ideal length varies by industry.

Q2: How is Operating Cycle different from Cash Conversion Cycle?
A: Operating Cycle includes only inventory and receivables days, while Cash Conversion Cycle also subtracts Payables Days (time to pay suppliers).

Q3: Can Operating Cycle be negative?
A: No, Operating Cycle cannot be negative as both Inventory Days and Receivables Days are always positive values.

Q4: How often should Operating Cycle be calculated?
A: It should be calculated regularly (quarterly or annually) to monitor changes in operational efficiency over time.

Q5: What factors can affect the Operating Cycle?
A: Inventory management efficiency, credit policies, customer payment behavior, and sales velocity all impact the Operating Cycle.