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13 April, 11:13

If Abrams Company has an inventory turnover of 7.3 and a receivables turnover of 9.6, approximately how long is its operating cycle?

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  1. 13 April, 11:31
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    It is 16.9

    Explanation:

    Operating cycle = Inventory turnover + Receivable turn over - payable turnover

    Hence, Operating cycle = 7.3+9.6

    =16.9

    Operating cycle implies how long it takes us to convert entire production process to cash.

    It has an direct relationship with the level of working capital required. The higher the operating cycle, the higher the working capital investment required to keep the operation running.

    A cash driven businesses like restaurant which hardly sell on credit will certainly have shorter operating cycle compared to a manufacturing company.
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