Working capital cycle
The Working Capital Cycle for a business is the length of time it takes to convert net working capital (current assets less current liabilities) all into cash. Businesses typically try to manage this cycle by selling inventory quickly, collecting revenue from customers quickly, and paying bills slowly, to optimize cash flow.It is used to understand the liquidity and efficiency of the company. The longer the working capital cycle the lesser is the chances of the generation of quick cash and shorter the working capital cycle the higher the turnover ratio thus generating more cash for the business. Hence, the outside debt or loan requirement becomes less which increases the efficiency quotient of the business
The Working Capital Cycle for a business is the length of time it takes to convert net working capital (current assets less current liabilities) all into cash. Businesses typically try to manage this cycle by selling inventory quickly, collecting revenue from customers quickly, and paying bills slowly, to optimize cash flow.It is used to understand the liquidity and efficiency of the company. The longer the working capital cycle the lesser is the chances of the generation of quick cash and shorter the working capital cycle the higher the turnover ratio thus generating more cash for the business. Hence, the outside debt or loan requirement becomes less which increases the efficiency quotient of the business