How is a company's operating cycle determined?

Question

Quizplus · Accepted Answer

The operating cycle of a company is determined by adding the average number of days to sell inventory to the average number of days to collect receivables. This provides the total amount of time it takes for a company to convert its inventory and receivables into cash. Option A calculates the number of days it takes for inventory to be sold and for receivables to be collected separately but does not give a combined operating cycle. Option C calculates the number of times inventory is sold and bought in one year but not the operating cycle. Option D calculates the number of days it takes for a company to convert its inventory and receivables into cash but is not accurate.

How Is a Company's Operating Cycle Determined