Operating Cycle in Financial Management

Presented To: Presented By:

Dr. Kamal Joshi Sir Puja chhetri
Reg no. :202201101003
Assistant Professor Course: BBA
Sub: Financial
Management
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What is the Operating Cycle?
Definition
The operating cycle refers to the time it takes for a company
to turn its purchases into cash flow from sales.

Key Components
It involves the process of purchasing inventory, selling it,
and collecting cash from customers.

Financial Management
Efficient management of the operating cycle is crucial for a
company's financial health and sustainability.

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 Where:

• Inventory Conversion Period=

Average Inventory/ Cost of
Goods Sold(COGS)per day

• Accounts Receivable Collection

Period = Average Account
Receivable / Sales per day

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Understanding the Components of Operating
Cycle

Cash Collection Inventory Management Sales Process

Streamlining invoicing and payment Involves maintaining optimum Efficient sales strategies and quick
collection processes are crucial for inventory levels to balance costs and conversion of inventory into sales
optimizing the operating cycle. meet customer demand. revenue are essential for a shorter cycle.

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Importance of Efficient Operating Cycle

Business Sustainability Cash Flow Management Working Capital

An efficient operating cycle is critical A shorter operating cycle enhances cash Efficient cycle management leads to
for sustaining operations and navigating flow, supporting day-to-day operations optimal working capital, reducing
economic fluctuations. and strategic investments. financial strain and supporting growth.

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