Skip to main content

Operating cycle

Operating cycle is the duration of time half time between acquisition of surprise and collection of cash from receivables
Operating cycle in a trading firm is the length of time required
  1.  to convert cash into inventory into  finished goods
  2.  to convert Inventory of finished goods into receivables 
  3. to convert receivables into cash
 
Operating cycle in a manufacturing firm is the length of time required:
  1.  to convert cash into inventory of raw materials 
  2. to convert Inventory of raw materials into work in progress
  3.  to convert inventory off work in progress into finished goods 
  4. to convert Inventory of finished goods into receivables 
  5. to convert receivables into cash
Labels:

Comments

Post a Comment

Popular posts from this blog

What is optimum working capital

Optimum working capital can be can be determined  only with reference to particular circumstances of a specific situation. An optimum working capital is dependent upon the business situation as such and the nature and composition of various current assets. A company having short conversion cycle like a vanaspati manufacturing company may have a     lower current ratio. On the other hand ,a company having longer conversation cycle like heavy equipment manufacturing company may have higher current ratio since it has to  carry  large inventories and debtors.
Post a Comment
Read more

Working capital and it's purpose

Meaning of working capital Working capital refers to funds required to be invested in the business for a short period usually up to 1 year. It is also known as short-term capital or  circulating capital. Purpose of working capital Working capital is required to meet day to day operating expenses and for holding stocks of raw materials, spare parts ,consumables ,work in progress and finished goods and book debts. More specifically working capital is needed : To holder stock of raw materials for such a period so as to facilitate  uninterrupted supply of raw materials to production process  to hold a stock of work in progress for process period  to hold stock of finished goods for such a period so as to meet the demands of customers on continuous basis and sudden demand from some customers  to grant credit to its customers for marketing and competitive reasons  to hold cash balances to meet the manufacturing office and administrative selling and ...
Post a Comment
Read more