the conversion cycle period is 24 days and the operating period is 23 days for Company...

the conversion cycle period is 24 days and the operating period is 23 days for Company tiger another company (m) has 57 days for operating period and 69 days for conversion cash period what are the differences and similarities and compare it

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Expert Solution

operating cycle :

An operating cycle represents the amount of time it takes a company to acquire inventory, sell that inventory, and receive cash from its customers in exchange for the inventory sold.

cash conversion cycle :

cash cycle represents the amount of time it takes a company to convert resources to cash.

Similarities and differences :

Operating Cycle and Cash Conversion Cycle are quite similar with only one additional item added on to the Operating Cycle formula in order to get the Cash Conversion Cycle formula .

operating cycle = Days of inventory outstanding/ Day sales outstanding

Cash conversion cycle = operating cycle - Days payable outstanding .

Comparsion:

Both formulas are liquidity measures and can also be used as a gauge for the operational and financial effectiveness of a company.

Note : Detailed formuals are provided in attachment.

ekkarill92 answered 1 year ago

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