Page 133 - Corporate Finance PDF Final new link

NPP

BRILLIANT’S Working Capital Management 133

OPERATING AND CASH CONVERSION CYCLE
Am°naoqQ>J VWm H¡$e H§$de©Z gm`H$b

Q.16. What is "operating cycle"? How do you calculate operating cycle period?
"Am°naoqQ>J gm`H$b" Š`m h¡? Amn Am°naoqQ>J gm`H$b nr[a`S> H$s JUZm H¡$go H$aVo h¢?

OR
Write a note on: operating and cash conversion cycle.
g§{jßV {Q>ßnUr {b{IE… Am°naoqQ>J VWm H¡$e H§$de©Z gm`H$b&

Operating Cycle Am°naoqQ>J gm`H$b
The operating cycle may be defined as the Am°naoqQ>J gm`H$b H$mo g_` H$s Cg Ad{Y Ho$ ê$n
time duration starting from the procurement _| n[a^m{fV {H$`m Om gH$Vm h¡ Omo JwS²>g `m am° _Q>o[a`b
of goods or raw materials and ending with the H$s IarXr Ho$ gmW àma§^ hmoVr h¡ Am¡a {~H«$s gånÞ hmoZo na
realization of sales. The working capital
nyar hmoVr h¡& {H$gr \$_© H$s d{Hª$J H¡${nQ>b H$s Amdí`H$Vm
requirement of a firm depends to a great extent
~hþV hX VH$ \$_© H$s Am°naoqQ>J gm`H$b na {Z^©a H$aVr
upon the operating cycle of the firm. The length
and nature of operating cycle may differ from h¡& Am°naoqQ>J gm`H$b H$s Ad{Y Am¡a àH¥${V AbJ-AbJ
one firm to another depending upon the nature \$åg© _| AbJ-AcJ hmo gH$Vr h¡ Omo {H$ \$_© H$s àH¥${V
and size of the firm. Am¡a AmH$ma na {Z^©a h¡&

Cash

Account Raw
Receivable Material

Work-in-
Sales
Progress
Finished
Goods

Fig.: Working of an operating cycle
In a trading concern, there is a series of EH$ Q´>oqS>J H$ånZr _| dñVwAm| H$s IarXr go boH$a
activities starting from procurement of goods CZHo$ ~oMo OmZo VH$ (`{X H¡$e goëg _| h¡ Vmo goëg Ho$
and ending with the realization of sales (in case g_` na Am¡a `{X H«o${S>Q> goëg h¡ Vmo CgH$m ^wJVmZ àmá
of cash sales at the time of sale and in case of
credit sales, at the time of payment received from hmoZo Ho$ g_` na) H$B© H$m`m] H$s EH$ l§¥Ibm hmoVr h¡Ÿ& Bgr
debtors). Similarly, in case of manufacturing àH$ma _¡Ý`y\¡$ŠM[a¨J H§$nZr _| `h l§¥Ibm am°-_Q>o[a`b H$s
concern, this series starts from procurement of IarXr go àmaå^ hmoVr h¡ Am¡a {\${ZíS> JwS²>g H$s {~H«$s na