Operating Cycle Flashcards
1
Q
What is the operating cycle
A
Amount of time between the outflow of cash to pay for materials and stock and the inflow of cash from customers
2
Q
What is working capital
A
Capital for the day to day operations of the business ie
Business current assets less current liabilities repayable in one year
3
Q
What would the operating cycle formula be for retail and wholesale businesses
A
Stock holding days + Debtor days
- Creditor days
4
Q
How do you calculate the stock holding day or period
A
Stock
/
Cost of sales
*
365
In other words how long is a item held as stock before it is sold
5
Q
How do you calculate trade debtor days
A
Trade debtors
/
Credit sales
*
365
Calculation should be in line with what credit terms it offers
