Session 22

 17-03-2026

Today's session covered the operating cycle and cash conversion cycle, which are important for understanding a firm’s short-term financial management.

The operating cycle represents the time taken from purchasing inventory to collecting cash from sales. It includes the inventory period and accounts receivable period, showing how efficiently a company manages production and credit.

The accounts payable period represents the time taken to pay suppliers, which led to the concept of the cash conversion cycle. The cash conversion cycle is calculated by subtracting the accounts payable period from the operating cycle, and it shows the number of days a company’s cash is actually tied up.

The example discussed, with an operating cycle of 105 days and a cash cycle of 75 days, helped me clearly understand how delaying payments to suppliers can reduce the time for which cash is blocked.

This made me realize how important working capital management is in maintaining liquidity and ensuring smooth business operations.

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