From the course: Financial Accounting Part 2
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The operating cycle
From the course: Financial Accounting Part 2
The operating cycle
- Everyone, numbers person or not, knows that cash is the lifeblood of a business. Without cash, you will not be in business for very long. You can have a great marketing plan, you can have a great location, you can have a great product or service, but if you don't turn your cash into more cash you will not be in business very long. So let's talk about a company's operating cycle, how long it takes from when a company buys inventory and then turns that inventory into a receivable and then turns that receivable into cash. If the operating cycle is too long, things get tough pretty quick for a company. In other words, if my cash is tied up in other assets, receivables, and inventory, then it's not available to me to utilize in the business. In this section, we're going to talk about short term financial management. In other words, how to monitor cash flows to ensure that a company has the money to pay its bills when those…
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