Working Capital Cycle

The working capital cycle is the length of time that an organization takes to convert its net current assets
and current liabilities into cash. Also considered the period of time between investing on products or
service and receiving a payment of that.
For example: If a company purchase raw material on the first day and take 7 days to produce and sell it
on day 19, receive payment for that product on 08th day the working capital cycle is 28 days.
Working capital serves as a metric for how efficiently a company is operating and how financially stable
it is in the short-term. So every firm should maintain sufficient working capital to ensure the smooth
business operation.
Without sufficient level of working capital would be difficult to survive also high level of working capital
denotes financial efficiency.
Some of the importance and necessity of working capital mentioned below:
I. Maintain day to day operation: If a company or a firm has sufficient level of working capital, it
should involve getting right raw materials supplied in right time.
II. Wages and utilities: Labor and stuffs are the most important component of a company along
with the utility services such as, water, electricity, Gas, telephone, internet etc. So it is important
to pay wages and utility expenses to play a smooth operation of that firm.
III. Customer satisfaction: Customers will be more satisfied if they regularly have their demandable
Goods and service.