Question

Difference between gross operating cycle and net operating cycle

Answer 1

Perhaps the simplest way to begin understanding the two (and how they’re different) is by seeing the formulas for each:
Operating Cycle = Days of Inventory on Hand (DOH ) + Days of (Credit) Sales Outstanding (DSO )
…where: DOH = 365/Inventory Turnover Ratio
…where inventory turnover ratio = COGS/Avg. Inventory
and
…where: DSO = 365/Receivables Turnover
…where: Receivables Turnover = Credit Sales/Avg. Accounts Receivable.
Essentially, the Operating Cycle looks to see how long after inventory is acquired does it take for the company to see cash come through the door.
The Net Operating Cycle just takes it one step further and adds a third item to the above equation:
Net Operating Cycle (aka cash conversion cycle) = DOH + DSO - Days of Payables Outstanding (DPO )
…where: DPO = 365/Payables Turnover
…where: Payables Turnover = Total Purchases From Suppliers/Avg. Accounts (or Trade) Payables.
Here we’re taking into the account that our supply purchases tend to be on credit, as in we don’t pay cash out immediately but rather over some period. DPO tells us how many days on average we’re taking to make payments on our purchases made on credit. So we’re subtracting this DPO figure from how long we take to collect cash (DOH + DSO) to arrive at what our net cash conversion cycle (net operating cycle) is.
Hope this helps!
Don't forget to mark as a branliest !!!

Answer 2

ke working capital, operating cyclecan also be gross operating cycle(operating cycle) and net operating cycle (cash operating cycle). Cashoperating cycle is gross operating cycle less creditor's collection period. It is the time period for which the working capital is required