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The operating cycle is one of the three activity cycles at company level. If the investment cycle is characterized by durability and the financing cycle, by stability, the operating cycle is defined by volatility. Dynamism is the keyword within this cycle, being based on operations with a high degree of repeatability, continuously generating causes/expenses and, consequently, effects/income, significantly impacting the company’s profitability and cost-effectiveness. In terms of uses/assets, the operating cycle focuses on inventory, current receivables, and treasury/liquidity, while in terms of resources/equity and liabilities, it aims at short-term liabilities. It describes the alignment of liquidity and of maturity dates of mentioned uses and resources. The specific financial management of the operating cycle provides optimization of inventory size, selection and control of clients, setting up the operating cash flow, as well as estimation of incurred funding sources. The financial analysis of the operating cycle highlights indexes such as current, quick, and immediate liquidity, turnover rate and average turnover time related to inventories, receivables, and short-term liabilities, as well as net working capital. |
