Respuesta :
The operating cycle is the typical amount of time needed for a company to invest its initial capital to purchase raw materials, produce products, sell those products, operating cycle and then receive payment from customers for those products.
What is operating cycle:
The time it takes for a business to purchase items, sell them, and get payment for those sales is known as an operating cycle. In other words, it is the length of time it takes for a company to turn its inventories into cash. Depending on the sector, an operational cycle can be any length.
The time it takes for a business to spend its funds to produce a good or service and get paid by the customer is known as an operating cycle. Faster completion of this cycle results in a more secure financial position for the business.
This is helpful for determining how much working capital a company will require to keep up with or expand its operations. As a result of having a very short operational cycle, a business can continue to expand while maintaining very low profit margins.
DIO is initially calculated by multiplying the average inventory balance by the COGS for the current period, operating cycle then by 365. The company needs 97 days on average to procure raw materials.
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