operating cycle

operating cycle definition - business

operating cycle

The average length of time between when a company purchases items for inventory and when it receives payment for sale of the items. The operating cycle is equal to the average age of inventories plus the average collection period. A long operating cycle tends to reduce profitability by increasing borrowing requirements and interest expense. Also called normal operating cycle. See also cash conversion cycle.

The American Heritage® Dictionary of Business Terms Copyright © 2009 by Houghton Mifflin Harcourt Publishing Company. Published by Houghton Mifflin Harcourt Publishing Company. All rights reserved.

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