Formula
to calculate payment period to operating cycle:
Payment
Period to Operating Cycle = payment period / (average
inventory period + collection period).
Payment
period to operating cycle ratio definition and
explanation:
A payment
period to operating cycle ratio above 1:1 (100%)
indicates that the inventory is sold and collected
before it is paid for (inventory does not need to be
financed).
A high
payment period to operating cycle ratio indicates that
the company may be vulnerable to tightened terms of
payments from their suppliers.
(the average inventory period is also known as the
inventory holding period)
The average
inventory period, collection
period, operating
cycle, payment period
and payment period to operating cycle ratios
are included in the RA-150
Extreme financial statement ratio analysis spreadsheet,
which provides formulas, calculations, definitions,
explanations and charts of 150 ratios.
The payment period to operating cycle ratio is listed
in our efficiency
ratios.
| The payment period to
operating cycle ratio and other ratios are key
to understanding financial statements. Our
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Spreadsheets to
calculate ratios (includes formulas, definitions,
explanations and charts):
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The payment period to
operating cycle ratio may be included in our
custom 1, 3 or 5 period financial
statement ratio analysis spreadsheet.
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accounting spreadsheet to calculate 15 ratios with
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