This video shows how to calculate the length of a company’s operating cycle.
The operating cycle is the number of days it takes a company to sell its inventory and collect cash from customers. Thus, it is calculated as follows:
Operating Cycle = Days to Sell Inventory + Days Sales Outstanding
Days to Sell Inventory is the number of days it takes for the company to sell its inventory. Days Sales Outstanding (also known as the Average Collection Period) is the number of days it takes the company to collect cash from its customers.