Operating Cycle & Cash Cycle (Essay Sample)

Operating Cycle & Cash Cycle
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Finance managers have to take powerful decisions in order to manage the funds of the company, therefore cash cycles and the management of working capital is extremely important for them (Brodersen & Pysh, 2014). Operating Cycle and Cash Cycle are some of the important elements that impacts over the operations of a business by providing valuable understanding regarding the financial volatility and position of the company.
Operating Cycle is referred as the measure of operating efficiency and the core working capital of a company (Brodersen & Pysh, 2014). It basically evaluates the time requires by a company to realize its inventories into Cash. Operating Cycle is basically a combination of Days in Sales to Inventory (DSI) and Days sales outstanding (DSO). A short operating cycle is an indemnity that the ability of the company in terms of interchanging its inventories into cash is powerful, and it will generate positive cash flow quickly for the company.
On the other hand, cash cycle which also referred as Cash Conversion Cycle (CCC) is a metric that analyzes the time it will take for a company to convert its resources into cash. There is a marginal difference found among the operating cycle and cash cycle which is the subtraction of days payable outstanding combination of DSI and DSO (Brodersen & Pysh, 2014). Cash conve...