Inventory turnover Ratio:
A ratio showing how many times a company's inventory is sold and replaced over a period.Although the first calculation is more frequently used, COGS (cost of goods sold) may besubstituted because sales are recorded at market value, while inventories are usuallyrecorded at cost. Also, average inventory may be used instead of the ending inventorylevel to minimize seasonal factors.
Inventory for whole year:
= Inventory x 360 days-----------------------------------(COGS)
Operating Cycle VS Cash Cycle:
Operating cycle and cash cycle
are two important components of working capitalmanagement. Together they determine the efficiency of a firm regarding working capitalmanagement.Operating cycle refers to the delay between the buying of raw materials and the receipt of cash from sales proceeds. In other words, operating cycle refers to the number of daystaken for the conversion of cash to inventory through the conversion of accountsreceivable to cash. It indicates towards the time period for which cash is engaged ininventory and accounts receivable. If an operating cycle is long, then there is lower accessibility to cash for satisfying liabilities for the short term.Operating cycle takes into consideration the following elements: accounts payable, cash,accounts receivable, and inventory replacement.The following formula is used for calculating operating cycle:
Operating cycle = age of inventory + collection periodCash cycle
is also termed as net operating cycle, asset conversion cycle, working capitalcycle or cash conversion cycle. Cash cycle is implemented in the financial assessment of a commercial enterprise. The more the figure is increased, the higher is the period for which the cash of a commercial entity is engaged in commercial activities and isinaccessible for other functions, for instance investments. The cash cycle is interpreted asthe number of days between the payment for inputs and getting cash by sales of commodities manufactured from that input.