What is the meaning and significance of the term "The Operating Cycle" ?

the time between paying the creditors and receiving cash from debtors is know as operating cycle.

It is the time between the purchase of an asset and its sale, or the sale of a product made from the asset.

which operating cycle are  you mean 

*- Operating  cycle in the accounting  

are those stages of the process of running the data to reach a decision, the last stage in the operating cycle 

1- Data Collection 

2- Classified &  Recording

3- Posting 

4- Prepare trial balance 

5- Restrictions inventory adjustments 

6- Trial balance after adjustments 

7- The preparation of final  financial statements

*- Operating  cycle  of the  cash

- In commercial establishments

Is the average time period between the purchase and sale of goods and collect the value of sales 

- In industrial installations

Is the average period of time between the purchase of raw materials for the manufacture, production and sale of products and collect cash and the value of sales 

*- Operating  cycle  of the  assets

Is the average time period between the purchase and sell of   asset after using it

The operating cycle is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods. If a company is a reseller, then the operating cycle does not include any time for production - it is simply the date from the initial cash outlay to the date of cash receipt from the customer.

The operating cycle is useful for estimating the amount of working capital that a company will need in order to maintain or grow its business. A company with an extremely short operating cycle requires less cash to maintain its operations, and so can still grow while selling at relatively small margins. Conversely, a business may have fat margins and yet still require additional financing to grow at even a modest pace, if its operating cycle is unusually long.

The following are all factors that influence the duration of the operating cycle:

The payment terms extended to the company by its suppliers. Longer payment terms shorten the operating cycle, since the company can delay paying out cash.

The order fulfillment policy, since a higher assumed initial fulfillment rate increases the amount of inventory on hand, which increases the operating cycle.

The credit policy and related payment terms, since looser credit equates to a longer interval before customers pay, which extends the operating cycle.

Thus, several management decisions (or negotiated issues with business partners) can impact the operating cycle of a business. Ideally, the cycle should be kept as short as possible, so that the cash requirements of the business are reduced.

Examining the operating cycle of a potential acquiree can be particularly useful, since doing so can reveal ways in which the acquirer can alter the operating cycle to reduce cash requirements, which may offset some or all of the cash outlay needed to buy the acquiree.

Expressed as an indicator (days) of management performance efficiency, the operating cycle is a "twin" of the cash conversion cycle. While the parts are the same - receivables, inventory and payables - in the operating cycle, they are analyzed from the perspective of how well the company is managing these critical operational capital assets, as opposed to their impact on cash.Formula:

This is the Periodicity Assessment of the birth story  till it receive with the next user of a Batch Production:  From Purchase of Materials(with the commitment of funds)-inputs-work-in-progress---Finished Goods--Storage period--Marketing--Encashment of the Sales proceeds giving a minor allowance to Sales Returns in case of branded products.