financial cycle - a period that concluded between the date of payment of accounts payable (payment received by customers and raw materials from suppliers) and the date of collection of receivables (receipt of funds from customers for products received by them).The second name of this concept - a series of money turnover.
financial cycle has a duration determined by the following formula:
PFC + = POPZ of underground - POKZ,
where POPZ - the period of revolution of inventories;
of underground - an indicator of the orbital period of receivables;
POKZ - an indicator of the orbital period of accounts payable.
Proceeding from the above, the duration of the cycle of monetary circulation is characterized by the average length associated with the outflow of funds in the implementation of the main production activities, and as a result of the influx of industrial and financial of their activities.
other words, the financial cycle - the time for which the funds are diverted from the circulation.This indicator is essential in determining the efficiency of economic activities of the entity.
The disposal of the company is always in reserve, which it can use in case of need.This is the cash resources provided by accounts payable.Indeed, the money invested in production, can not be removed just there to cover their short-term shortage.Therefore, no question about the sales of inventory at low prices.The situation is similar to the receivables.To obtain additional funds business entity achieves certain changes in relations with debtors.
financial cycle of the enterprise shows that the most effective management of accounts receivable.So, the moment of payment can be successfully managed, and in the event of a critical situation - to delay repayment of a debt.In other words, it is payable indirectly controls the volume of the current funds and should be taken into account when assessing the company's financial performance.
In analyzing the activity of the subject experts noted the relationship of financial and operational cycles, but they describe different aspects of functioning of the enterprise.So, with the help of the operating cycle describes the production and technological aspects of the company.It shows the time in which financial resources are frozen in the form of inventories and receivables.
financial cycle it shows the financial aspect of the activity.Due to the payment of invoices from the company there is some time lag - the time at which cash resources are extracted from circulation - lower than the average turnover of accounts payable.
the dynamic reduction in operating and financial cycles by experts, this fact is regarded as a positive trend.Reducing the size of the operating cycle is carried out, mainly by increasing the speed of the production process and accelerate the turnover of accounts receivable.A financial cycle can be reduced due to a decrease in turnover of accounts payable.
