The working capital cycle is the amount of time it takes a company to convert its working capital into cash. The shorter the working capital cycle is, the faster and more efficient the company is able to manage its working capital. The ultimate goal of working capital cycle management is to optimize cash flow by selling inventory quickly, collecting accounts receivables faster, and delaying payments to accounts payable as much as possible. The working capital cycle formula is as follows: Working Capital Cycle = Inventory Days + Receivable Days - Payable Days Normally, most companies would have a positive working capital cycle. However, sometimes companies could have a negative working capital cycle if they are able to collect money from customers faster than they pay off the payables.
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