Cash operating cycle

Cash operating cycle

The cash operating cycle (also known as the working capital or the cash conversion cycle) is the period of time between the outflow of cash to pay for raw materials and the inflow of cash from customers.

ü Cash operating cycle

=Inventory days + AR collection period - AP payment period

The length of the cash operating cycle is often dictated by the industry. For example, a construction business may have a long cash operating cycle because of the high level of work in progress. Restaurant businesses usually have short cash operating cycles because they have short inventory periods and customers pay by cash or debit or credit card.