How to calculate operating cycle?
Understand the Problem
The question is asking how to determine the operating cycle of a business, which involves calculating the time it takes for a company to purchase inventory, sell it, and collect cash from customers. This typically includes analyzing the components of inventory turnover and accounts receivable turnover.
Answer
Inventory Period + Accounts Receivable Period
The final answer is Inventory Period + Accounts Receivable Period.
Answer for screen readers
The final answer is Inventory Period + Accounts Receivable Period.
More Information
The operating cycle is a crucial metric in accounting to gauge the efficiency and productivity of a company's operations. It indicates how quickly a company can turn its products into cash.
Tips
One common mistake is not properly accounting for the full inventory and receivable periods. Ensuring accurate tracking in both periods is essential for an accurate calculation.
Sources
- Learn How to Calculate the Operating Cycle - corporatefinanceinstitute.com
- How to Calculate Operating Cycle? - Wall Street Prep - wallstreetprep.com
- What Is an Operating Cycle? Plus How To Calculate It | Indeed.com - indeed.com
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