Operating cycle
Financial Accounting glossary · The Accounting Cycle & Financial Statements
Definition
Average time from purchasing inventory to collecting cash from related sales.
Operating cycle in plain English
The operating cycle is how long it takes a business to turn its stuff back into cash — the full loop from buying inventory, to selling it, to finally collecting the money. Picture a lemonade stand: you buy lemons and sugar, make and sell the lemonade, and wait to actually get paid; the whole round-trip is your operating cycle. A shorter cycle is healthier because your cash isn't tied up for long and keeps coming back to you faster.
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