operating cycle

Definition

The time it takes to convert cash into inventory, inventory into receivables, and receivables back into cash—essentially how long your money is tied up in operations. Shorter is better unless you're a fine wine producer.

Example Usage

The manufacturer's 180-day operating cycle meant it needed significant working capital to maintain production.

Origin

Working capital management concept developed in early 20th century industrial accounting

Fun Fact

Amazon's negative operating cycle means customers pay before Amazon pays suppliers, generating free cash flow that funded its expansion.

Source: Working capital and cash conversion analysis

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