Question

You noticed that a fast food restaurant's operating cycle is 30 days. would this suggest the restaurant is selling food beyond its expiration date?

Answer 1

No, i will not suggest the restaurant is selling food beyond its expiration date because the operating cycle includes the average collection period which will be long if the restaurant only takes cash.

What is an operating cycle?

This refers to the number of days required for a business to receive inventory, sell the inventory and collect cash from the sale of the inventory.

The operating cycle as a financial tools plays a major role in determining the efficiency of a business.

Hence, whenever we noticed that a fast food restaurant's operating cycle is 30 days, we will not suggest the restaurant is selling food beyond its expiration date because the operating cycle includes the average collection period which will be long if the restaurant only takes cash.

Read more about operating cycle

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