Question

explain (in words) the concept of operating cycle and cash cycle. do you want these cycles to be high or low relative to the industry and why?

Answer 1

Operating cycle is the cycle of operations of obtaining of the raw material into the finished products and it includes all the input output and processing along with other processes which will be beneficial of the company in yielding the output.

cash cycle is the cycle of conversion of creditor orodebtors or other operating items into cash and these are the cycles which are generating liquidity for the company. It includes account payable cycles and account receivable cycles which are representatives of creditors and debtors.

I want both the operating cycle as well as the cash cycle to be smaller for the company because it will help the company in realisation of the cash and effectiveness of the business and it will help the company to survive and sustain in the long run and maximize the profit in the long run.

shorter cash cycle means that there would be high amount of cash on the books of the company and shorter operating cycle means that there would be operating efficiency on the part of the company.