Digest Finance

Updating the Existing Approaches to Gauging the Length of Operating and Cash Conversion Cycles

Vol. 23, Iss. 3, SEPTEMBER 2018

PDF  Article PDF Version

Received: 28 June 2018

Received in revised form: 12 July 2018

Accepted: 23 July 2018

Available online: 28 September 2018


JEL Classification: O12, Q01

Pages: 274-288


Savitskaya G.V. Belarus State Economic University (BSEU), Minsk, Republic of Belarus

ORCID id: not available

Importance Operating and cash conversion cycles are one of the key performance indicators of working capital management. If they last longer, more working capital is required, while their decrease has the opposite effect. The duration measurement methodology is a frequent subject of discussion in the scholarly and training literature. However, there are dissenting opinions on their substance and measurement technique.
Objectives The research comprehensively studies challenging aspects of the methodology for measuring the duration of operating and cash conversion cycles and substantiates my own viewpoint on the issues.
Methods The theoretical and methodological framework comprises proceedings of the national and foreign economists majoring in financial analysis. I also use the historical approach, generic and special methods of analysis, synthesis and analogy.
Results I specify the economic substance and technique to gauge the duration of operating and cash conversion cycles and their constituents. To make the computations more precise, it is advisable to estimate inventories, receivables and payables using monthly or even daily balances, which are quite feasible as accounting and analytical data are processed electronically.
Conclusions and Relevance The proposed approach may serve as a basis for further development of the financial analysis methodology and methodological guide for business entities to monitor and make business decisions in the process of working capital management.

Keywords: operating cycle, cash conversion cycle, calculation algorithm


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Vol. 23, Iss. 3
September 2018