Operating cycle
The operating cycle is the time between acquiring assets for processing and realising them in cash or cash equivalents. The cycle includes the time materials spend in production, the time finished goods await sale and the period before customers pay. For liquidity analysis, a cash operating cycle can also consider the credit period received from suppliers. These are related but distinct measures.
Worked example
A manufacturer buys materials, makes and sells goods, then collects cash.
Common mistake
It need not begin with payment for inventory; classification uses 12 months when the normal cycle is not clearly identifiable.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Supporting | September 2026–June 2027 |
| ACCA | K1 | Supporting | July 2027–August 2028 |
| FIA | FFA | Supporting | September 2026–June 2027 |