Working Capital Cycle/Operating Cycle
A continuous process starting from payment of cash for purchasing raw material ,
production , stocking , selling until obtaining money from debtors.
It is a cycle involving—- conversion of cash into raw material > conversion of raw material into WIP > conversion of WIP into Finished goods> conversion of Finished goods into cash /debtors and > conversion of debtors into cash.
OC = R+W+F+D-C
Ie.
Duration of Operating Cycle = Raw mat. period+WIP period +Finished goods period +Debtors collection period –Creditors payment period
CALCULATIONÂ OFÂ W. CAP . CYCLE
i) Raw Mat. Stock Holding Period = R.Mat. Stock  X 365 days
Annual Purchases
+
ii) WIP  duration                            =  WIP stock  X 365 days
Cost of Prodn.
+
iii) Finished Goods Stock Holding Period = Finished Goods Stock X 365 days
Cost of Goods Sold
+
iv) Debtors Collection Period  = Debtors            X 365 days
Credit Sales
LESSÂ :
i) Creditors Payment Period = Creditors                  X 365 days
Credit Purchases
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