1. What are Operating Cycle and Working Capital Cycle? How does calculate it?

Question

Accepted Answer

The Operating Cycle (OC) measures how long it takes a business to buy, sell, and collect cash for inventory. The Working Capital Cycle (WCC) measures how long it takes to convert current assets and liabilities into cash

Accepted Answer

An Operating Cycle (OC) refers to the days required for a business to receive inventory, sell the inventory, and collect cash from the sale of the inventory.

Operating Cycle = Inventory Period + Accounts Receivable Period

Accepted Answer

Working Capital Cycle (WCC) is the time it takes to convert net current assets and current liabilities (e.g. bought stock) into cash.

For most businesses, the Working Capital Cycle formula is as follows:

Inventory Days + Receivable Days - Payable Days = Working Capital Cycle in Days

The Working Capital Cycle formula may vary depending on different types of business. For example, a manufacturing business will have more phases than a retailer.

1. What are Operating Cycle and Working Capital Cycle? How does calculate it?

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