A company has levers to pull regarding cash flows from operations. Learn about the management of payables, or days' purchases in payables.
- [Instructor] A firm's operating cycle is measured…as the time from when inventory is purchased…to when cash is collected from the sale of that inventory.…Consider Proctor and Gamble, for example.…They make Tide laundry detergent,…Pampers diapers,…and Dawn dishwashing liquid, to name a few.…On average, it takes them across all their product brands…about 57 days to turn raw materials into inventory…and then sell it.…Then they wait about 27 days before receiving…the cash from the customer to whom they sold that…inventory, like Walmart, their biggest customer.…
So their operating cycle is 84 days,…57 days to turn raw materials into inventory…and then sell it,…and then 27 days to collect the cash from that sale.…Now, that may seem like a long time from start to finish…from raw materials to inventory…to accounts receivable to cash.…But hold on.…We need to factor in one more variable.…How long does Proctor and Gamble have before they…have to pay for the inventory they've purchased?…In other words, what is their days'…
Skill Level Beginner
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