Operational and financial cycle. The operating cycle and its duration are important indicators of management accounting. Unit of measurement: days

The operating cycle shows the time during which a company turns raw materials and supplies into revenue from the sale of products. It allows you to determine the position of an enterprise in the industry, changes in its solvency and financial position. The basis for the calculation is the cost of production (form No. 2), as well as accounts receivable and inventory (form No. 1). A reduction in operating assets indicates a decrease in the profit of the enterprise.

When a clothing store purchases another batch of dresses, it most often manages to receive revenue from their sale within a few weeks. When a car assembly plant buys raw materials, it will be able to receive revenue for finished cars no earlier than in a few months. This difference in periods between the purchase of materials, semi-finished products or products is determined by the operating cycle.

Operating cycle(Operating Cycle - OC, OTs) is the duration of the period of time from the moment raw materials are received by the enterprise until the receipt of revenue from sold products - goods, works, services.

Any OS is usually divided into two periods:

production cycle - the period during which raw materials are converted into finished products;
financial cycle - the number of days from the investment of funds in the purchase of raw materials or goods for sale until the receipt of revenue.

Figure 1. Components of the operating cycle.
Source: Financial and investment blog of the Zhdanovs Ivan and Vasily

Important point! The duration of the Operating Cycle shows how many days are needed to transform raw materials, materials, semi-finished products, goods into cash. Consequently, for trading enterprises it is usually shorter (since there is no production cycle) than for manufacturing enterprises.

OC is considered one of the most effective indicators for assessing the effectiveness of working capital management. If its duration increases, then this indicates an increase in the need for working capital.

For whom is the operating cycle indicator important?

The operating cycle is an indicator for internal use within the framework of management accounting. It is important for the owners and management of the company because it shows:

How long will it take for money invested in material assets to be returned in the form of revenue;
Will it be enough to ensure the production of own funds or will it be necessary to attract borrowed resources?

Important point! When making management decisions, it is important to understand that a shorter operating cycle promises higher profits, and a short financial cycle allows you to get by with a minimum amount of attracted resources.

Formula for calculating the working capital indicator

Pots = Domz + Dogp + Dodz + Donp, where

Domz - period of inventory turnover (raw materials);

Dogp - turnover period of finished products;

Dodz - duration of turnover of receivables with its components;

Donp - period of turnover of work in progress.

In order to obtain the final value of the OS duration, it is necessary to calculate each of the intermediate indicators.

* - PSA - cost of goods sold, MH - inventories, GP - finished goods, DZ - accounts receivable, WP - work in progress.

What is the normal value of the OS indicator?

Financial analysis does not offer an exact standard value for the operating cycle indicator, since it varies significantly by industry: in the trade sector it is low, for enterprises with complex production it is significant. Therefore, to obtain OS information useful for decision-making:

considered over several years;
compared with competitors in the industry.

Examples of operating cycle calculations

The role of OC in management accounting and the procedure for its calculation can be finally determined by examples of determining this indicator for two companies: the M.Video trading corporation and the Tatneft production concern.

Table 3. Definition of fixed assets for the Tatneft group, billion rubles.

	Reporting item



	Material reserves for this year
	Material reserves as of this year
	Finished products for NG
	Finished products for k.g.


	Duration of the OC

Conclusion! The OT indicator for the Tatneft group has been growing for three years, which indicates a decrease in the efficiency of managing material and inventory, as well as accounts receivable. This trend entails a decrease in profits and a deterioration in the financial situation.

The presented graph shows negative dynamics of profit, which is due to positive dynamics in the duration of the operating cycle.

Table 4. Determination of PV for PJSC M.Video, billion rubles.

	Reporting item

	Accounts receivable for the year
	Accounts receivable for the current year
	Material reserves as of this year
	Material reserves for this year
	Finished products for k.g.
	Finished products for n, g,
	Work in progress as of this year
	Work in progress for the year
	Duration of the OC

Conclusion! The OC indicator for PJSC M.Video has been decreasing for three years, which indicates an increase in the efficiency of managing material resources, inventory, and remote control. This trend has a positive effect on the company's profit growth.

Since the analysis used data from the financial statements of two companies with different types of activities (trade and production), the obtained result confirmed the theoretical thesis that manufacturing enterprises, as a rule, have a longer operating cycle than trading ones (in 2017, “ Tatneft - 17; and M.Video - 7).

It is most convenient to calculate the duration of the operating system of the two companies under consideration in the Excel spreadsheet editor. The above examples of indicator calculation are given in the attached

Current assets are the most mobile part of an organization's property. These are objects that are used by an organization within one operating cycle or within a relatively short calendar period of time (year). These are investments in mobile assets of an enterprise that are cash or can be converted into cash within a year or one operating cycle if it exceeds a year.

The circulation of current assets covers three stages: procurement (purchases), production and sales:

At the procurement stage, current assets are transferred from monetary form to production form (labor items or goods).
At the production stage, resources are translated into products; the result of this stage is the transition of current assets from the production form to the commodity form.
At the implementation stage, current assets are transferred from commodity form to monetary form again.

The duration of production, operational and financial cycles is the most important indicator of the effectiveness of management of current assets:

The production cycle is a cycle of operations with tangible current assets, i.e. the period of time from the purchase of raw materials to the receipt of finished products.
The operating cycle is the period of time from the purchase of raw materials to payment for finished products (if the organization operates on a prepayment basis, then the end of the operating cycle will be shipment, and not payment for finished products).
The financial cycle is the period of time from payment for raw materials to receipt of funds for sold products. The financial cycle determines the need for working capital, i.e. the need for financing the operating cycle, not covered by accounts payable. The financial cycle is not only the most important indicator of the effectiveness of managing current assets, accounts payable and working capital of an organization, but also an indicator of the stability of the organization’s market position and its ability to finance the production cycle at the expense of market counterparties, i.e. the ability to dictate terms to counterparties.

The following segments can be distinguished from which the duration of the production, operational and financial cycles is formed.

Duration of stay of raw materials and supplies in the warehouse.
Duration of the production process.
Duration of stay of finished products in the warehouse.
Receivables maturity date.
Repayment period for accounts payable.
Duration of circulation of advances issued.
Duration of circulation of received advances.

The duration of each segment is calculated as follows.

1. The residence time of raw materials and supplies in the warehouse is calculated by the formula

Тс = (Зс / МЗ) * 365

where Zs is the cost of inventories of raw materials and supplies; MH - material costs for the year.

2. The duration of the production process is calculated using the formula

Tpr = [Znp / (Sp * kn) ] * 365,

where Znp is the cost of work in progress inventories; Cn - cost of products sold; kn is the cost increase coefficient characterizing the ratio of the cost of work in progress to the total cost of production, calculated by the formula kn = [MZ + 0.5 * (Po - MZ)] / Po, where Po is expenses for ordinary activities, including the cost of products sold , commercial and administrative expenses.

3. Time of stay of finished products in the warehouse:

Tg = (Zg / Sp) * 365

where Zg is the cost of finished goods inventories.

4. Receivables repayment period:

Td = (DZba / V) * 365

where DZba is accounts receivable without advances issued; B—revenue (net).

5. Repayment period for accounts payable:

Tk = (KZba / Ro) * 365

where KZBA is accounts payable without advances received.

6. Duration of circulation of advances issued:

Tav = (Av / MZ) * 365

where Av are advances issued.

7. Duration of circulation of received advances:

Tap = (Ap/B) * 365

where Аn are advances received.

Production cycle duration:

Dpr = Tc + Tpr + Tg

Operating cycle time:

Add = Ts + Tpr + Tg + Td

Duration of the financial cycle:

Df = Add + Tav - Tk - Tap

To calculate the duration of the production cycle, it is permissible to use a simplified algorithm:

D'pr = (Z / Sp) * 365

where Z is the sum of the items “inventories” and “VAT on purchased assets”.

It is also possible to calculate the repayment period for receivables and payables without issuing advances.

There are four possible financial cycle options:

classic: accounts receivable (without advances issued) exceed advances received; accounts payable (without advances received) exceed advances issued;
reverse: advances received exceed accounts receivable (without advances issued); advances issued exceed accounts payable (without advances received);
extended: accounts receivable (without advances issued) exceed advances received; advances issued exceed accounts payable (without advances received);
shortened: advances received exceed accounts receivable (without advances issued); accounts payable (without advances received) exceed advances issued.

The types of financial cycles given above are very conditional. They do not take into account the presence of both advances issued and accounts payable to suppliers and contractors, or advances received along with accounts receivable from buyers and customers.

For analytical purposes, advances issued should be compared with accounts payable (without advances received), as well as advances received with accounts receivable (without advances issued). Then, taking into account the dominant indicator, a final assessment of the financial cycle should be made.

The shorter the cycles, the lower the degree of provision of the organization with current assets and the riskier the organization. However, the longer the cycles, the higher the organization's need for sources of financing and the higher the financing costs. A situation is possible, in particular for wholesale intermediaries, when a long financial cycle leads to a complete loss of margin due to the payment of interest on loans attracted to finance receivables.

Thus, a contradiction arises between operational efficiency, on the one hand, and financial stability, on the other. A change in the supplier payment scheme to prepayment terms compared to payments upon delivery may, under certain conditions, be considered a sign of the organization’s loss of its market position and a threat to the continuity of its activities, since it causes an additional need for financial resources. Reducing financial cycle time can be achieved in three ways:

reducing the duration of the production cycle by optimizing the procurement scheme for raw materials, optimizing the production process and reducing the time spent by finished products in the warehouse;
reducing the maturity of receivables by tightening credit policy, provided that market conditions allow this;
increasing the repayment period of accounts payable by obtaining deferred payments to suppliers.

An extended cycle is characterized by significant accounts receivable and high balance sheet financial stability (due to an increase in liquid assets), however, losses in financing the financial cycle can have the opposite effect (through a decrease in profits) on the operational financial stability of the organization.

A shortened financial cycle, which is characterized by significant accounts payable and low balance sheet financial strength, has a positive effect on the organization's profit and on the operational financial stability of the organization. In addition, the duration of the financial cycle indirectly characterizes the market position of the organization in the sales and supply markets. Advances received indicate the presence of a certain market power of the organization in the sales market, while advances issued, on the contrary, indicate the presence of this power among suppliers.

An effectively managed and financially stable organization is characterized by a classic financial cycle, without significant advances, with balanced receivables and payables. But effective organizations with significant market power often deliberately reduce the duration of the financial cycle, financing a significant part of the production cycle at the expense of their counterparties through advances received and accounts payable to suppliers and contractors; At the same time, financial stability remains very high.

When assessing the dynamics of the duration of the operating cycle components and developing a cycle management strategy, it is necessary to take into account that it reflects not only the degree of efficiency of working capital management, but also the objective processes occurring in the enterprise, which can lead to an increase in the operating cycle.

In particular, this may be a change in the range of manufactured products, policies regarding the formation of inventories, credit policies, etc. In this case, the lengthening of cycles and, consequently, a decrease in the turnover of current assets should be compensated by an increase in margin, which ultimately leads to an increase in the return on invested capital of the organization and does not worsen its position in terms of value creation.

When determining the forecast duration of the component cycles, it is necessary to take into account the identified trends in its change, as well as an expert assessment of the future dynamics of these indicators.

Using the operating and financial cycle, you can manage the profitability and liquidity of the company, which is always relevant for financial directors. We'll tell you how you can increase profits by shortening your operating cycle. And how a decrease in the financial cycle affects business liquidity.

In difficult times for the economy, the most pressing task for many financial directors was ensuring the growth of the company's profits. The second most important issue is maintaining business liquidity. The well-known method of financial optimization - cost reduction - has long been implemented and managers are looking for other effective, but not so obvious methods of increasing business profitability. In this article we will look at one of them - managing the company’s profit and liquidity using the operating and financial cycles.

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What is an operating cycle

The operating cycle is the broadest concept among the cycles performed by the current assets of an enterprise.

The operating cycle is the number of days during which the current assets of an enterprise complete a full turnover.

Let us recall that the current assets of an enterprise are divided into two groups:

Inventory.
Cash and cash equivalents, as well as accounts receivable .

Therefore, the operating cycle of an enterprise consists of two cycles - production (inventory turnover) and financial (cash turnover).

Interrelation of operational, production and financial cycles

In general, the relationship between the operating, production and financial cycles can be clearly represented in the form of a diagram (see Figure 1).

Picture 1. Interrelation of operational, production and financial cycles

Note that the figure shows only one of the options for interconnecting enterprise cycles.

When an enterprise uses different policies for relations with counterparties, other schemes will occur (see also about verification of the counterparty ). We give the most common examples in Figure 2.

Figure 2. Other options for connecting operational, production and financial cycles

As can be seen from the examples, there are many options for relationships.

Operating cycle: calculation formula

where To is the operating cycle,

Тр – production cycle,

Tdz – receivables turnover cycle.

The receivables turnover period can be calculated using the formula:

where ∑DZ is the average amount of accounts receivable for the year,

∑revenue – total revenue for the year.

Operating cycle time: formula

To estimate the time of one turnover of raw materials and materials, you need to add up the periods of turnover of receivables and inventories. The formula for the duration of the operating cycle looks like this:

where T ots – duration of the operating cycle (in days),

Т odz – receivables turnover period (in days),

T oz – period of inventory turnover and costs,

K oz – inventory and cost turnover ratio.

In order to determine the operating cycle, you need to calculate the production cycle.

Production cycle

The production cycle is the period required for a company's inventory to complete a full turnover. In other words, for manufacturing and trading companies this is the number of days from the moment raw materials arrive at the warehouse until the finished product is shipped to the buyer. For companies operating in the service sector, this is the duration of providing one service.

From the definition it follows that the production cycle can be divided into phases:

Cycle of turnover of raw materials and supplies.
Work in progress turnover cycle.
Turnover cycle of finished products.

Production cycle calculation

There is no universal formula for calculating the duration of the production cycle, so we will calculate the duration of each component of the cycle. All figures for calculation can be taken from the company’s regulated financial statements for the year (or for any other period).

To calculate the turnover period of raw materials and materials, we apply the formula:

where Tob.s is the period of turnover of raw materials and materials, in days,

∑balance of raw materials and materials – the average balance of raw materials and supplies in the warehouse for the year,

∑ costs of raw materials and materials – total costs of raw materials and supplies, per year.

Formula for calculating the turnover period of work in progress:

where Tob.wp is the period of turnover of work in progress, in days,

∑WIP – average amount of work in progress for the year,

∑cost of products sold – total cost price products sold per year.

The turnover period of finished products is calculated using the formula:

where Tob.gp is the turnover period of finished products, in days,

∑GP – average value of GP balances in the warehouse for the year,

The production cycle itself is calculated as the sum of the three previously calculated periods. The formula for the production cycle time looks like this:

The production cycle is measured in days, months, minutes, hours, etc.

Reducing the operating cycle and generating additional profits

The duration of the operating cycle directly affects the amount of profit a company makes per year. The shorter the operating cycle, the more turnover the current assets will make per year, and, accordingly, the more profit the company will receive per unit of invested funds. Therefore, we will consider ways to shorten the operating cycle, dividing them into groups:

1 group. Reducing the turnover period for raw materials and materials

These include the following methods:

implementation of procurement policies in the organization, unification of procurement procedures, identification of key suppliers and maximum centralization of procurement processes. The result of implementing the method will be a reduction in downtime due to disorganization, the period of searching for a supplier and negotiations. Additional bonuses may include faster transportation of raw materials to the place of production and an agreement on reduced purchase prices;
implementation of inventory management policies, XYZ analysis, determination of minimum quantities by groups of raw materials and materials. The positive effect will be expressed in the leveling of downtime due to shortages of raw materials;
automation of inventory management and logistics. As in any other area of business, automation will give an effect in the form of better controllability, increasing labor productivity , and as a result, reducing the turnover of raw materials and materials.

2nd group. Reducing the turnover period of work in progress

The methods of this group are the most capital-intensive and labor-intensive of all listed, but the return on their implementation is great:

modernization of machines and production equipment, purchase of new robotic lines. Any major investment should first be analyzed for increasing capital productivity of production (see also what capital productivity shows), but the experience of many companies shows that improving production technologies has a greater effect in the form of profit from shortening the operating cycle than capital investments in the purchase of equipment;
improving manufacturability and unification of manufactured products. No less expensive, but no less effective method. Downtime for reconfiguring equipment often costs the enterprise more than investments in R&D;
increasing labor efficiency. A rich set of measures to increase labor productivity is described in specialized literature, among them: the transition to a shift schedule, photography of the working day, labor assessment based on KPI, maximum automation and robotization of production procedures;
competent organization of production process management, increasing the parallelism of processes, determining the optimal batch size, etc.

3rd group. Reducing the turnover period of finished products

For the third group, all the methods listed for the first group are effective, plus:

implementation of policies for working with customers, synchronization of production with the requests of key customers (if possible). The effect of introducing the method will be the rational production of batches of goods according to the needs of customers and the avoidance of stockpiling of finished products;
permanent analysis of the market, demand dynamics, seasonality of demand, competition in the market. If the enterprise’s sales market is retail, or it is entering new markets and has not yet acquired regular customers, this method becomes the first in importance of the entire set of measures;
reduction of time for generating reporting documentation;
establishing your own logistics network, or selecting the optimal logistics partner company and/or agreeing on minimum delivery times for finished products to customers and penalties for delays.

What is a financial cycle

If the duration of the production cycle determines the amount of profit earned by the company, then the duration of the financial cycle directly affects the availability of free cash in the company.

The financial cycle is the period for which funds are withdrawn from circulation to support operating activities. In other words, this is the number of days from payment to the supplier for raw materials and supplies to receipt of funds from the customer for the finished product.

The financial cycle is calculated using the formula:

where T f is the financial cycle of the enterprise,

To – operating cycle,

Tkz – period of turnover of accounts payable.

Turnaround period accounts payable in turn is calculated as:

Where ∑КЗ is the average amount of accounts payable for the year,

∑cost of products sold – the total cost of products sold during the year.

Duration of the financial cycle

The duration of the financial cycle of an enterprise is determined as the difference between the period of circulation of inventories and receivables and the period of circulation of accounts payable. The formula for the duration of the financial cycle looks like this:

where Ts is the turnover period of the enterprise’s inventories,

T dz – receivables turnover period,

T kz – period of turnover of accounts payable,

K Odz – accounts receivable turnover ratio,

Koz – inventory turnover ratio,

K okz – accounts payable turnover ratio.

Reducing the financial cycle and increasing business liquidity

The shorter a company's financial cycle, the less funding it requires to operate. This means that the credit burden on the business will be less. The duration of the financial cycle of an enterprise depends on the timing of payments to suppliers and the timing of payment for finished products, as well as on the policy of working with receivables.

Let's look at several ways to shorten the financial cycle. The financial cycle of an enterprise decreases when the following conditions are met:

increasing payment terms to suppliers by changing contractual terms, searching for suppliers willing to work on the most favorable payment terms. It is possible to link payment terms to the size of the ordered batch or select an aggregator supplier with more favorable conditions;
implementation of cash management policies and payment procedures. Many companies, having good contractual terms with suppliers, do not use them, since their payment process is not established, there is no payment calendar and invoices are paid literally “on call”;
reducing payment terms for finished products by customers by changing contractual terms. It is possible to introduce a system of discounts depending on the agreed payment terms;
implementation of a policy for working with receivables, ranking receivables by maturity in accordance with contractual terms, preventing overdue debts;
monthly reconciliation of mutual settlements with debtors and creditors and timely resolution of disagreements.

The practice of exceeding the turnover period of accounts payable over the period of turnover of accounts receivable is considered positive. In this case, funds are withdrawn from circulation for a minimum period and, accordingly, the credit load is minimal (or none).

conclusions

Managing the duration of operating and financial cycles is an effective mechanism for extracting maximum profit from available resources. Any effective leader must know and be able to manage the cycles of his organization.

Let us add that reducing the duration of cycles should not be a one-time action, but carried out on an ongoing basis, therefore the main step towards financial efficiency will be the introduction of new optimal business processes and their consolidation in company policies. The work is monotonous and difficult, but the result is worth it.

Many companies were in unpleasant situations associated with the sudden withdrawal of funds from circulation. Getting out of them is extremely difficult and can be accompanied by large losses.

Relevance of the issue

Often, the director decides to withdraw amounts from the account to finance a project, assuming its payback and the possibility of repaying obligations to suppliers. Meanwhile, as practice shows, the scenario in such situations is standard. After some time, it turns out that there are not enough funds to pay for the supplied materials and raw materials. Accordingly, we have to urgently look for additional sources, ask debtors to repay their debts ahead of schedule, negotiate with banks, and so on. Similar cases occurred in large corporations that thoughtlessly changed the terms of payment with suppliers and provided customers with deferred payments. For this purpose, new contracts were concluded with counterparties. Their essence was the refusal to use deferments in exchange for a reduction in the purchase price of goods. At the same time, buyers purchased products at an increased selling price. However, they were given twice as much time as before. A few months later, companies began to face an acute shortage of working capital. Accordingly, they had to urgently get loans from banks. The company will not have problems with a lack of current assets if management begins to strictly control the proportions between equity and borrowed capital through which financing is carried out. To do this, it is necessary to develop an effective management model. It involves planning the duration of the operating and In addition, you will need to determine current liquidity.

Operating cycle of the enterprise

It includes several processes. During it, in particular, the purchase of materials and raw materials, the creation of products, their sale, as well as the repayment of debt (if any) are carried out. Simply put, a complete turnover of assets occurs during the operating cycle.

Key elements

Within the operating cycle, the following components are distinguished:

Full turnover of MPZ. It is also called the production cycle. It shows the average number of days it takes to convert raw materials and materials into finished products. Accordingly, it begins from the moment stocks arrive at the warehouse and ends when finished products are shipped to the consumer.
Accounts receivable turnover. It represents the average period of time required to repay obligations by buyers who purchased products on credit.
Accounts payable turnover. It represents the period of time during which a company settles its obligations to other organizations.

Operating and financial cycle

Inventory turnover

Management efficiency depends on the ratio of the duration of the financial and production cycle. The latter includes turnover periods:

Raw materials reserves.
Work in progress.
Inventories of finished goods.

Production and operational cycle

To determine them, the corresponding equations are used. To calculate the duration of the production cycle, the following equality is used:

PC = POgp + POnzp + POpz, where:

POpz - the number of days spent on the turnover of stocks of semi-finished products, materials, raw materials;
POzp - number of days of turnover of work in progress;
POgp - duration of inventory turnover of finished goods (products) in days.

The operating cycle is calculated using the parameter found above. In addition, the calculation uses a value characterizing the average turnover period of debtors' debt. Their sum will show how long the operating cycle lasts. The formula looks like this:

OTs = POdz + PTs.

Relationship between indicators

When analyzing the structure of a company's working capital, the importance of time characteristics to ensure effective capital management becomes clear. Of particular importance in this case is the distribution of the company's need for current assets in specific periods. For calculations, a methodology is used based on the duration of the financial and operational cycle and the expected costs of current activities. The first indicator includes the time for delivery, manufacturing and assembly of products, their sale, and waiting for repayment of customer debt. The financial cycle - the duration of cash circulation - is the period during which funds do not participate in circulation. Its duration can be determined as follows. From the indicator characterizing the operating cycle, the time of debt circulation to creditors is subtracted. Management is carried out to reduce the period in which funds are not used. As the duration of the financial cycle decreases, the time it takes to use your working capital becomes shorter.

Features of accounts receivable

The obligations of counterparties are an integral element of the work of any company. A large share of receivables in the total system of assets significantly reduces the liquidity and solvency of the company, while increasing the risk of losses. The operating cycle of a modern company involves the dynamism of transactions. In the current conditions, great attention must be paid to debtors' debts. It is often defined as a component of working capital. This element represents specific requirements for organizations and citizens regarding payment for services, products or work. There is also a trend in which accounts receivable are identified with commercial credit. Typically, the economic benefit of such obligations is expressed in the fact that the company, going through the operating cycle, expects to receive cash or equivalents. however, it can be recognized as an asset if it is probable that it will be repaid. If it is missing, the amount of liabilities must be written off.

Resilience Management

To create an effective model, you need information from the budget of expenses and income, some projected indicators of balance sheet items. A monthly breakdown is a mandatory requirement. The more often the budget execution process and, consequently, the company’s solvency are monitored, the better. When developing the model, you will also need turnover values, indicators of the duration of the operating and financial cycles. Of particular importance will be the following quantities:

The need for short-term loans to replenish working capital.
The planned value of the liquidity ratio at the current moment.

The first indicator is determined as the difference between the total need for working capital and equity. The planned value of Ktl can be calculated as follows:

Ktl = TIC x average expenditure per day/short-term liabilities.

This model allows you to understand how OT and FC affect the coefficient indicator.

Conclusion

Every manager must clearly understand what the operating cycle and the turnover period are. Thanks to this, he can obtain all the necessary information to determine the need for his own assets. In addition, you need to understand the very essence of the business, understand how processes are structured within the company, how optimal they are, and whether there are reserves for optimization. When performing calculations, it is also necessary to take into account that the size of your current assets continuously changes throughout the year. In this regard, every month, when comparing actual and planned indicators, adjustments to model parameters should be constantly monitored. To ensure that not only the financial director understands the significance and importance of cycle timing, it is advisable to determine the responsibilities of department heads for each element. This can be done by linking the organization’s existing system of bonuses and bonuses with the required indicators.

Cash in itself, i.e. those not invested in the business cannot generate income; on the other hand, the enterprise must always have a certain amount of available funds - this determines the need for a certain systematization of approaches to asset management. In general, an effective cash management system involves identifying four large blocks of procedures: calculating the financial cycle, analyzing cash flows, forecasting cash flows, and determining the optimal level of cash.

Among the most important characteristics of the effectiveness of current activities are indicators of the duration of the operating and financial cycles. The operating cycle is the conventional name of the period as a typical recurring element of the production and commercial process (from the receipt of raw materials to the return of funds in the form of revenue), during which funds are stored in inventories and settlements (debtors); An analytical indicator characterizing the average time of death of funds in these assets is called the duration of the operating cycle. The beginning of the operating cycle is the appearance of inventories on the company's balance sheet as a signal of the beginning of the transformation chain "raw materials (with the appearance of an obligation to pay for them) - products - settlements - cash", and its end is the appearance on the balance sheet of proceeds from the sale of manufactured and sold products. The operating cycle begins from the moment the obligation to pay for purchased inventories appears, i.e., from the moment of formal investment of funds in inventories, and ends with the moment the funds are returned to the company’s accounts in the form of revenue.

The financial cycle is the conventional name for a period as a typical repeating element of the trade and technological process, at the beginning of which money actually “goes” to pay suppliers for the raw materials purchased from them and at the end of which it is “returned” in the form of revenue. An indicator characterizing the average duration between the actual outflow of funds in connection with the implementation of current production activities and their actual inflow as a result of production and financial activities is called the duration of the financial cycle.

A reduction in the operating and financial cycle over time is considered a positive trend and vice versa. If a reduction in the operating cycle can be done by accelerating the production process and accounts receivable turnover, then the financial cycle can be shortened both due to these factors and due to some non-critical slowdown in accounts payable turnover.

Thus, the duration of the financial cycle in days of turnover is calculated using formula 1:

PFC = POC - WOK, (1)

where POC is the duration of the operating cycle (accounts receivable turnover in days + inventory turnover in days), thousand rubles;

VOK - accounts payable turnover time, thousand rubles.

Calculation of the duration of the operating and financial cycle for 2005 - 2007 is presented in Table 10.

Table 10 - Calculation of the duration of the operating and financial cycle of Firm Tik LLC for 2005 - 2007

Indicator name	Calculation formula	Abs. off 2007 from 2005

Accounts receivable turnover, turnover	Sales revenue/average accounts receivable
Duration of 1 turnover of receivables, days	360/receivables turnover
Inventory turnover, turnover	Revenues from sales / average reserves
Duration of 1 inventory turnover, days	360/inventory turnover
Accounts payable turnover, turnover	Sales revenue/average accounts payable
Duration of 1 turnover of accounts payable	360/ accounts payable turnover
Duration of the operating cycle, days	Accounts receivable turnover + inventory turnover
Length of financial cycle, days	Duration of the operating cycle - duration of turnover of accounts payable

The data in Table 10 suggests that the turnover of accounts receivable in 2007 decreased from 3.8 in 2005 to 2.5 turnovers per year, thereby, the duration of one turnover increased by 49 days.

Inventory turnover in 2007 was 5.3 turns per year, which is 3.4 turns less than in 2005, when this figure was 8.7 turns per year. The duration of one revolution increased by 27 days.

The turnover of accounts payable in 2007 decreased by 2.4 turns per year compared to 2005; the duration of one turn increased by 98 days.

Due to the high duration of one turnover of inventories and receivables, the duration of the operating cycle of Firma Tik LLC increases from 2005 to 2007. In 2007, the duration of the operating cycle of the organization was 212 days, which is 76 days more than in 2005.

The duration of the financial cycle of Firm Tik LLC in 2005 - 2007 is a positive value, which indicates the growing needs of the organization to attract borrowed funds. In 2007, this figure in the organization was 32 days, but this is 22 days less than in 2006. The decrease in the financial cycle indicator is a positive trend, as it indicates a decrease in the need for borrowed funds.This occurs due to the management of accounts payable, due to the fact that the organization postpones its repayment period.