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CASH MANAGEMENT
2. Defining Operating Cycle (OC)
Operating cycle is an average time period to acquire inventory,
process it and sell the finished product until to the point when cash is
collected from the sale of it.
3. Defining Cash Cycle (CC)
Most of the time a company is able to purchase raw materials on
credit. The time its takes to pay for these inputs is called the average
payment period. The ability to purchase raw materials on credits
allows the firm to offset the length of time resources that are tied up
in the operating cycle. So cash cycle refers to an average time
between ‘cash out’ for inventory and ‘cash in’ from collection on sales.
In other words, cash cycle is an average time the company is without
cash.
