WORKING CAPITAL CYCLE
Alternatively known as ‘Operating Cycle Concept’ of the working capital. This concept is based upon continuity of flow through business operations. This flow of value is caused by different operational activities during a given period of time. These operational activities of an organizational may comprise of:
Purchase of raw materialConversion of raw material into finished products
Sale of finished products &
Realization of account receivable
Materials cost is partly converted by the trade credit from suppliers successive operational activities also cash flow. If the flow continues without any interruption, operational activities of the company will also continue smoothly. Movement of cash through above processes is called ‘circular flow of cash’
The period required to complete his flow is called ‘the operating period’ or the operating cycle. To estimate the working required, the number of operating cycle in a year is to be calculated. This is calculated by dividing the number of days in a year by the length of the cycle. Total operating expenses in a year dividing by the number of operating cycle in that year is that amount of working capital required.
OPERATING CYCLE = R + W + F + D – C
Where,
R = RM Holding period
W= Processing period
F = FG Holding period
D = Debtors collection period
C = Creditors payment period
Alternatively known as ‘Operating Cycle Concept’ of the working capital. This concept is based upon continuity of flow through business operations. This flow of value is caused by different operational activities during a given period of time. These operational activities of an organizational may comprise of:
Purchase of raw materialConversion of raw material into finished products
Sale of finished products &
Realization of account receivable
Materials cost is partly converted by the trade credit from suppliers successive operational activities also cash flow. If the flow continues without any interruption, operational activities of the company will also continue smoothly. Movement of cash through above processes is called ‘circular flow of cash’
The period required to complete his flow is called ‘the operating period’ or the operating cycle. To estimate the working required, the number of operating cycle in a year is to be calculated. This is calculated by dividing the number of days in a year by the length of the cycle. Total operating expenses in a year dividing by the number of operating cycle in that year is that amount of working capital required.
OPERATING CYCLE = R + W + F + D – C
Where,
R = RM Holding period
W= Processing period
F = FG Holding period
D = Debtors collection period
C = Creditors payment period