Working Capital Cycle
Time it takes to convert net current assets and liabilities to cash flow.
Detailed Description
Working Capital Cycle
What is the working capital cycle?
The working capital cycle is the time it takes for a business to convert its net current assets and liabilities into cash.
Why is the working capital cycle important for businesses?
It affects liquidity, operational efficiency, and financial stability, allowing for better cash flow management.
What are the main components of the working capital cycle?
The main components are Inventory, Accounts Receivable, and Accounts Payable.
How is the working capital cycle calculated?
It is calculated using the formula: Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding.
What strategies can improve the working capital cycle?
Strategies include optimizing inventory management, improving accounts receivable collection, and negotiating better payment terms.