From the course: Financial Accounting Foundations
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Operating ratio
- A company's operating cycle is the length of time from when the company buys its inventory until when the company collects the cash associated with selling that inventory. The total length of the operating cycle is the sum of two time periods, the number of days that elapse from the purchase of inventory to when it's sold plus the number of days from the sale of the inventory until the customer pays in cash. Walmart, for example, sells the inventory that it purchases from Toro, Proctor and Gamble, and its other suppliers in an average of 42 days. This number is called the number of days' sales in inventory and is computed as follows. Inventory divided by average daily cost of sales. And average daily cost of sales is just the annual cost of sales divided by 365 days. Using the numbers for Walmart for the year ending January 31st, 2019, the number of days' sales in inventory is computed as follows. 44.269 billion…
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