Many Manufacturing firms have operating cycle more than a year , is that implies that tenure of thier short term sources of finance can go beyond the period of one year.
operating cycle is the average period of time that is required for a business organisation in making investment in cash to produce goods, sell the goods and receive cash from the customers for the goods sold. Operating cycle is very important because it determines cash flow. a short operating cycle will enable the business to meet its current liabilities. on the other hand, a long operating cycle indicates that current assets are not converted into cash very quickly. therefore, the operating cycle is an important determinant of the tenure of short term resources of a business organisation.
Perhaps you can provide us with a bit more contex of your research. Problem sounds interesting enough.
Short-term sources of financing are used to finance urgent necessities, and these sources of financing are used to finance assets that have a rapid turnover, being due in a maximum period of one year.
Money, that is engaged in cash cycle should be in principle long-term financed. Therefore we talk about investment in cash. In the case of short-term financing this amount, a company is not able to settle these short-term obligations. It has to prolong them continuously or to acquire revolving credits that replace long-term financing. It is a matter of capital adequacy of the company. More in:
http://www.irdo.si/skupni-cd/cdji/cd-irdo-2015/referati/37-zivko-bergant-paper-final-(.pdf.
Sure... Operating Cycle is most important mechanism that could decide the short-term sources... Only in case of soundness in the short-term operation,@ will make the firm on going process with stable working capital. The operating cycle should be short to have better liquidity in the business. On the other hand if the operating cycle takes long time it will struck the cash operations in the business.
I agree to most of you......but here i would like to know.....normally we consider tenure of short term resources up to one year but in some firms the operating cycle exceeds to more than a year so in that case definition of short term resources should not be like up to one year only....
it depends on the nature of the production of a product and it goes with the cycle of conversion of raw materials into finished goods....
As amatter of fact Many Manufacturing firms have an operating cycle more than a year ,which is means that tenure of thier short term sources of finance can go beyond the period of one year and it might be able to get more than one source in courteous sereis .
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