What components are included in the operating cycle of a business?

The operating cycle of a business refers to the process of acquiring inventory, converting it into sales, and ultimately collecting cash from those sales. This cycle reflects the essential operational activities that enable a business to generate revenue and manage its cash flow effectively.

The first component, acquiring inventory, involves purchasing the goods or materials needed for production or resale. After inventory is acquired, the next step is selling those products, which transforms the inventory into revenue. Collecting cash from customers is the final stage, as it completes the cycle by converting sales into liquid funds that can be used for reinvestment or to pay expenses.

This sequence is critical to understanding how businesses operate and sustain themselves financially. It highlights the importance of not just selling products but also ensuring timely cash collection to maintain liquidity and fund ongoing operations.

In contrast, other options discuss aspects unrelated to the operating cycle. Investing in long-term assets and financing pertains to capital budgeting and financial management, while manufacturing scale and employee productivity focus on operational efficiency rather than the cycle of cash flow. Marketing strategies and customer retention are essential for sales but do not directly describe the operational processes involved in the typical operating cycle. Thus, the correct understanding of the operating cycle focuses specifically on acquiring inventory, selling products, and collecting cash