From the course: Finance and Accounting Tips

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Understand a company's operating cycle

Understand a company's operating cycle

From the course: Finance and Accounting Tips

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Understand a company's operating cycle

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- While net income provides the best measure of Affirm's economic performance and maybe the best indication of a company's long term potential, we've all heard the saying that cash is king. To get to the long term, one has to live through the short term, and the short term requires cash. - Now, sure, companies can borrow money, and companies can sell ownership interest, but you can only borrow so much money before the lenders start to get nervous about repayment. You can only sell so much stock before investors start to wonder about future cash flows. Lenders lend expecting future operating cashflow, and investors invest expecting future operating cashflow. - Let's talk about operating cashflow specifically a company's operating cycle. The operating cycle is the length of time from when a company purchases inventory for resale to when the company receives the cash from the sale of that inventory. - In other words, how long does inventory sit as inventory until it's sold, and how long…

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