This cycle tells a business owner the average number of days it takes to purchase inventory, and then convert it to cash. That is, it measures the time it takes a business to purchase supplies, turn them into a product or service, sell them, and collect accounts receivable (if needed). Most companies will have a positive cash conversion cycle, representing that it takes X number of days for them to turn cash into inventory and back again. However, a negative CCC is also possible when a business receives payments for the goods it sells before it\u2019s paid any of its suppliers.<\/p>\n

Importance of the Operating Cycle<\/h2>\n

However, different industries will have different cash operating cycle standards. Therefore, it is important that the comparison is made within similar business for the comparison to produce useful results. This can help the business avoid any loans that other business, with longer cash conversion cycle, have to take to finance their working capital needs.<\/p>\n

Days inventories outstanding equals the average number of days in which a company sells its inventory. Days sales outstanding, on the other hand, is the average time period in which receivables pay cash. Operating cycle refers to number of days a company takes in converting its inventories to cash. It equals the time taken in selling inventories (days inventories outstanding) plus the time taken in recovering cash from trade receivables (days sales outstanding). The DSO calculates how long it takes to collect money when sales are generated.<\/p>\n

Credit Risk Management Software<\/h2>\n

Long working capital cycles mean a business has capital tied up for extended periods of time. The operating cycle is the time required for converting sales into cash after converting resources into inventories. The operating cycle of a manufacturing firm is different from non-manufacturing companies because manufacturing companies need to resource raw materials and convert them into finished goods.<\/p>\n

A lower CCC indicates that a company is able to convert its inventory and receivables into cash quickly, which can improve its ability to meet its financial obligations and pay back business loans. It divides the average inventory by the cost of goods sold (COGS) and multiplies it by the period\u2019s number of days. A company\u2019s number of days of payables, number of days of receivables, and number of days of inventory may be combined to indicate its operating cycle and net operating cycle.<\/p>\n","protected":false},"excerpt":{"rendered":"

Content Importance of the Operating Cycle Credit Risk Management Software How to Calculate the Operating Cycle Net Operating Cycle (Cash Cycle) vs Operating Cycle The Formula for the Cash Conversion Cycle (CCC) To improve an operational process, business owners should look at the accounts receivable turnover, average payment period (inventory days), and inventory turnover. Finally, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ocean_post_layout":"","ocean_both_sidebars_style":"","ocean_both_sidebars_content_width":0,"ocean_both_sidebars_sidebars_width":0,"ocean_sidebar":"","ocean_second_sidebar":"","ocean_disable_margins":"enable","ocean_add_body_class":"","ocean_shortcode_before_top_bar":"","ocean_shortcode_after_top_bar":"","ocean_shortcode_before_header":"","ocean_shortcode_after_header":"","ocean_has_shortcode":"","ocean_shortcode_after_title":"","ocean_shortcode_before_footer_widgets":"","ocean_shortcode_after_footer_widgets":"","ocean_shortcode_before_footer_bottom":"","ocean_shortcode_after_footer_bottom":"","ocean_display_top_bar":"default","ocean_display_header":"default","ocean_header_style":"","ocean_center_header_left_menu":"","ocean_custom_header_template":"","ocean_custom_logo":0,"ocean_custom_retina_logo":0,"ocean_custom_logo_max_width":0,"ocean_custom_logo_tablet_max_width":0,"ocean_custom_logo_mobile_max_width":0,"ocean_custom_logo_max_height":0,"ocean_custom_logo_tablet_max_height":0,"ocean_custom_logo_mobile_max_height":0,"ocean_header_custom_menu":"","ocean_menu_typo_font_family":"","ocean_menu_typo_font_subset":"","ocean_menu_typo_font_size":0,"ocean_menu_typo_font_size_tablet":0,"ocean_menu_typo_font_size_mobile":0,"ocean_menu_typo_font_size_unit":"px","ocean_menu_typo_font_weight":"","ocean_menu_typo_font_weight_tablet":"","ocean_menu_typo_font_weight_mobile":"","ocean_menu_typo_transform":"","ocean_menu_typo_transform_tablet":"","ocean_menu_typo_transform_mobile":"","ocean_menu_typo_line_height":0,"ocean_menu_typo_line_height_tablet":0,"ocean_menu_typo_line_height_mobile":0,"ocean_menu_typo_line_height_unit":"","ocean_menu_typo_spacing":0,"ocean_menu_typo_spacing_tablet":0,"ocean_menu_typo_spacing_mobile":0,"ocean_menu_typo_spacing_unit":"","ocean_menu_link_color":"","ocean_menu_link_color_hover":"","ocean_menu_link_color_active":"","ocean_menu_link_background":"","ocean_menu_link_hover_background":"","ocean_menu_link_active_background":"","ocean_menu_social_links_bg":"","ocean_menu_social_hover_links_bg":"","ocean_menu_social_links_color":"","ocean_menu_social_hover_links_color":"","ocean_disable_title":"default","ocean_disable_heading":"default","ocean_post_title":"","ocean_post_subheading":"","ocean_post_title_style":"","ocean_post_title_background_color":"","ocean_post_title_background":0,"ocean_post_title_bg_image_position":"","ocean_post_title_bg_image_attachment":"","ocean_post_title_bg_image_repeat":"","ocean_post_title_bg_image_size":"","ocean_post_title_height":0,"ocean_post_title_bg_overlay":0.5,"ocean_post_title_bg_overlay_color":"","ocean_disable_breadcrumbs":"default","ocean_breadcrumbs_color":"","ocean_breadcrumbs_separator_color":"","ocean_breadcrumbs_links_color":"","ocean_breadcrumbs_links_hover_color":"","ocean_display_footer_widgets":"default","ocean_display_footer_bottom":"default","ocean_custom_footer_template":"","ocean_post_oembed":"","ocean_post_self_hosted_media":"","ocean_post_video_embed":"","ocean_link_format":"","ocean_link_format_target":"self","ocean_quote_format":"","ocean_quote_format_link":"post","ocean_gallery_link_images":"on","ocean_gallery_id":[],"footnotes":""},"categories":[63],"tags":[],"class_list":["post-2702","post","type-post","status-publish","format-standard","hentry","category-bookkeeping","entry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.pugliadiscovervalleditria.it\/wp-json\/wp\/v2\/posts\/2702","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.pugliadiscovervalleditria.it\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.pugliadiscovervalleditria.it\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.pugliadiscovervalleditria.it\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.pugliadiscovervalleditria.it\/wp-json\/wp\/v2\/comments?post=2702"}],"version-history":[{"count":0,"href":"https:\/\/www.pugliadiscovervalleditria.it\/wp-json\/wp\/v2\/posts\/2702\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.pugliadiscovervalleditria.it\/wp-json\/wp\/v2\/media?parent=2702"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.pugliadiscovervalleditria.it\/wp-json\/wp\/v2\/categories?post=2702"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.pugliadiscovervalleditria.it\/wp-json\/wp\/v2\/tags?post=2702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}