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    Working Capital Management: Operating Cycle Method

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    Pranit Bhagat
    1) The operating cycle measures how efficiently a company manages key assets like receivables, inventory, and payables from an operational perspective rather than cash impact. 2) It is calculated by adding days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO). 3) DIO, DSO and DPO are calculated using figures from the income statement and balance sheet to determine average balances and sales or costs per day.

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    Working Capital Management: Operating Cycle Method

    Uploaded by

    Pranit Bhagat
    14 views2 pages
    1) The operating cycle measures how efficiently a company manages key assets like receivables, inventory, and payables from an operational perspective rather than cash impact. 2) It is calculated by adding days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO). 3) DIO, DSO and DPO are calculated using figures from the income statement and balance sheet to determine average balances and sales or costs per day.

    Original Description:

    Operating Cycle (Days) =DIO +DSO-DPO

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    Working Capital Management.docx

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    1) The operating cycle measures how efficiently a company manages key assets like receivables, inventory, and payables from an operational perspective rather than cash impact. 2) It is calculated by adding days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO). 3) DIO, DSO and DPO are calculated using figures from the income statement and balance sheet to determine average balances and sales or costs per day.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    14 views2 pages

    Working Capital Management: Operating Cycle Method

    Uploaded by

    Pranit Bhagat
    1) The operating cycle measures how efficiently a company manages key assets like receivables, inventory, and payables from an operational perspective rather than cash impact. 2) It is calculated by adding days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO). 3) DIO, DSO and DPO are calculated using figures from the income statement and balance sheet to determine average balances and sales or costs per day.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Working Capital Management

    Operating Cycle method


    The Operating cycle is expressed as an indicator (days) of management performance efficiency, the operating cycle is a twin of the cash conversion cycle. While the parts are the same- receivables ,inventory and payables- in the operating cycle, they are analyzed from the perspective of how well the company is managing these critical operational capital assets as opposed to impact on cash

    Formulae:
    Operating ycle (!ays) "!#O $!%O-!&O

    DIO- !ays #nventory O'tstanding DSO- !ays %ales O'tstanding DPO- !ays &ayable O'tstanding
    DIO is computed by:

    (. Dividing the cost of sales (income statement) by 365 to get a cost of sales per day figure; ). Calculating the average inventory figure by adding the year's beginning (previous yearend
    amount) and ending inventory figure (both are in the balance sheet) and dividing by 2 to obtain an average amount of inventory for any given year; and *. Dividing the average inventory figure by the cost of sales per day figures

    Days of nventory !utstanding " #verage nventory$Cost of %ales per day


    DSO is computed by:

    (. Dividing net sales (income statement) by 365 to get net sales per day figure; ). Calculating the average accounts receivable figure by adding the year's beginning (previous
    yearend amount) and ending accounts receivable amount (both figures are in the balance sheet) and dividing by 2 to obtain an average amount of accounts receivable for any given year; and *. Dividing the average accounts receivable figure by the net sales per day figure&

    Days of sales outstanding " #verage accounts receivable$ net sales per day

    DPO is computed by: Dividing the cost of sales (income statement) by 365 to get a cost of sales per day figure; Calculating the average accounts payable figure by adding the year's beginning (previous yearend amount) and ending accounts payable amount (both figures are in the balance sheet)' and dividing by 2 to get an average accounts payable amount for any given year; and Dividing the average accounts payable figure by the cost of sales per day

    Days (ayable outstanding " #verage accounts (ayable$ cost of sales per day

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