1. What is Net Operating Cycle (NOC)?

Definition: The Net Operating Cycle measures how long it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

Purpose: It helps businesses understand their cash conversion cycle and manage working capital more effectively.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( NOC \) — Net Operating Cycle (days)
• \( DIO \) — Days Inventory Outstanding (days)
• \( DSO \) — Days Sales Outstanding (days)
• \( DPO \) — Days Payable Outstanding (days)

Explanation: The formula calculates how many days it takes for a company to turn its inventory investments into cash, minus the days it takes to pay suppliers.

3. Importance of Net Operating Cycle

Details: A shorter NOC indicates better working capital management, while a longer cycle may signal cash flow problems or inefficiencies.

4. Using the Calculator

Tips: Enter your DIO (how long inventory sits before being sold), DSO (how long customers take to pay), and DPO (how long you take to pay suppliers). All values must be ≥ 0.

5. Frequently Asked Questions (FAQ)

Q1: What's a good Net Operating Cycle?
A: It varies by industry, but generally shorter is better. Compare with industry benchmarks for context.

Q2: How do I calculate DIO, DSO, and DPO?
A: DIO = (Average Inventory / COGS) × 365
DSO = (Accounts Receivable / Revenue) × 365
DPO = (Accounts Payable / COGS) × 365

Q3: Can NOC be negative?
A: Yes, if DPO > (DIO + DSO), meaning you pay suppliers after receiving customer payments.

Q4: How can I improve my NOC?
A: Reduce DIO (better inventory management), reduce DSO (faster collections), or increase DPO (extend payables without penalties).

Q5: What's the difference between NOC and CCC?
A: They're essentially the same - both measure the cash conversion cycle, though some sources may use slightly different terminology.