From the course: Running a Profitable Business: Understanding Financial Ratios
Join today to access over 22,600 courses taught by industry experts or purchase this course individually.
Length of the operating cycle
From the course: Running a Profitable Business: Understanding Financial Ratios
Length of the operating cycle
- One of my favorite things in accounting is to take these two ratios, day sales and inventory and average collection period, and add them together. That'll tell me a company's operating cycle. An operating cycle is how long from when we buy the inventory till we collect the cash associated with selling that inventory. In the case of Nordstrom in 2013, they have their inventory on hand for 68 days. Once they sell it, it takes them, on average, 64 days to collect. Their operating cycle during 2013 was 132 days. Compare that with 2012. Their inventory was on hand for 62. Their average collection period was 64. Their operating cycle in 2012 was 126 days. So between 2012 and 2013 it had gone up a little bit. Contrast that with Dillard's. Remember, Dillard's had inventory on hand for 120 days, with virtually no average collection period, because GE was handling their accounts receivable. So Dillard's operating cycle was…
Practice while you learn with exercise files
Download the files the instructor uses to teach the course. Follow along and learn by watching, listening and practicing.
Download courses and learn on the go
Watch courses on your mobile device without an internet connection. Download courses using your iOS or Android LinkedIn Learning app.