Operating Cycle versus Cash Conversion Cycle

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Essay #: 063547
Total text length is 4,812 characters (approximately 3.3 pages).

Excerpts from the Paper

The beginning:
Operating Cycle versus Cash Conversion Cycle
To stay in business, a firm must finance its day-to-day operations as it moves its goods through the production process to the point where they can recognize revenue from the sale of these goods. A firm’s operating cycle defines the average time span the firm takes from the point it purchases or acquires inventory until it receives cash proceeds from the sale of the goods produced with that initial inventory. The shorter the operating cycle for a firm, the higher its turnover and total revenue. Similarly, the cash conversion cycle (CCC) for a firm is a metric that measures a combination of items, among them the amount of time needed to sell inventory, then collect receivables from its customers,...
The end:
.....and payable.
For the operating cycle calculation, management efficiency is the core focus. Meanwhile, cash flow is the concern when using the cash conversion cycle. An owner should care about both ratios, though it will depend on the nature of his/her business as to which one should receive greater consideration. Given that management efficiency typically equates to bottom line success, the operating cycle should receive more focus than CCC.
Works Cited
“Cash Conversion Cycle (CCC).” No date.
Investopedia
. 26 Oct
2010. http://www.investopedia.com/terms/c/cashconversioncycle.asp
“Operating Performance Ratios: Operating Cycle.” No date.
Investopedia
. 26 Oct 2010.
http://www.investopedia.com/university/ratios/operating-performance/ratio3.asp