What does Operating and Cash Cycles tell you? Why are they important?

Expert Solution

Operating cycle is a cycle in which the company will be trying to convert its inventory into sales, and it will be reflecting the overall ability of the company in order to convert its inventory into sales in a quicker amount of time.

Cash cycle is reflecting the ability of the company to realise the cash as quickly as possible and convert its current asset and other assets to cash so it is reflecting the ability of the company in order to stay liquid and generate cash.

They are important because they are reflecting how the company is performing at the the Asset efficiency and it is also reflecting the ability of the company order in to generate the cash from its acids quickly so that it can stay liquid.

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