"A series of transactions that includes purchases of merchandise inventory for cash or on credit, payment for purchases made on credit, sales of merchandise inventory for cash or on credit, and collection of cash from the sales."
The average time it takes for a retailer's or manufacturer's inventory to turn to cash. If a manufacturer turns its inventory six times per year (every two months) and allows customers to pay in 30 days, its operating cycle is approximately three months. To Top
The operating cycle, or working capital cycle, is calculated by deducting creditor days from stock days plus debtor days. It represents the period of time which elapses between the point at which cash begins to be expended on the production of a product and the collection of cash from the customer.
The three primary activities of a company are purchasing, producing, and selling a product. The operating cycle is calculated by adding the inventory conversion period to the receivables conversion period.