1. What is the Operating Cycle?

The Operating Cycle measures the time it takes for a company to convert its inventory and other resources into cash from sales. It represents the number of days between purchasing inventory and receiving cash from accounts receivable.

2. How Does the Calculator Work?

The calculator uses the Operating Cycle formula:

Where:

• Average Inventory — The average value of inventory held during the period
• COGS Per Day — Cost of Goods Sold per day (total COGS / number of days)
• Average Receivables — The average amount of accounts receivable
• Sales Per Day — Total sales per day (total sales / number of days)

Explanation: The formula calculates how many days it takes to sell inventory plus how many days it takes to collect receivables.

3. Importance of Operating Cycle Calculation

Details: A shorter operating cycle indicates better liquidity and more efficient operations. It helps businesses manage working capital requirements and improve cash flow management.

4. Using the Calculator

Tips: Enter all values in the same currency. Use monthly averages for more accurate results. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good operating cycle length?
A: Shorter cycles are generally better, but optimal length varies by industry. Compare with industry benchmarks for context.

Q2: How does operating cycle relate to cash conversion cycle?
A: Cash conversion cycle = Operating cycle - Accounts payable period. It measures how long cash is tied up in operations.

Q3: Can operating cycle be negative?
A: No, operating cycle cannot be negative as it represents time periods (days).

Q4: How often should operating cycle be calculated?
A: Typically calculated monthly or quarterly to track efficiency trends over time.

Q5: What factors can improve operating cycle?
A: Faster inventory turnover, improved collection processes, and efficient production cycles can all reduce operating cycle length.