Definition of Operating Cycle:
The operating cycle is the amount of time it takes for a company to turn cash used to buy inventory into cash once again. This number is evaluated by adding the age of inventory (the number of days that inventory is held prior to sale) with the collection period (the number of days needed to collect receivables). A company with a short operating cycle is able to quickly recover its investment. A corporation with a long operating cycle will have less cash available to meet any short-term requirements, which can result in increased borrowing and interest expense.