Overview
The operating cycle is the amount of time it takes for a company, starting from cash, to produce a product, sell the product, and receive cash from the customer. The sales cycle includes.
- Amount of time that is required to produce a product
- Amount of time required to sell the product
- Amount of time required to receive cash from the customer, in particular, if the product was sold on credit.
Mapping the Cycle
One of the key elements of working capital management is the mapping of the operating cycle. That is, the analyst maps each step in the operating cycle, (using an app such as the diagram app) and then estimates the amount of time required for each step in the cycle, and lastly tracks the amount of product in each step, so that she can estimate when new cash will be received, and how much.