Operating cycle

The time from buying raw material to collecting cash from the customer, before any credit taken from suppliers. Inventory days plus receivable days.

The distributor's operating cycle is 122 days against a cash conversion cycle of 71, and the 51-day gap is the free funding its suppliers provide.

The distinction is worth holding onto because the two numbers answer different questions. The operating cycle measures how long the business model takes; the cash conversion cycle measures how much of that time the company has to fund itself. A firm can shorten the second by paying suppliers later without improving the first at all, and that improvement is borrowed rather than earned.

It also sets the definition of a current asset. Where the operating cycle runs longer than a year, as in construction or shipbuilding, inventory is still classified as current.