It is evident that cash goes out of the business entity for procurement of resources which is consumed by activities performed for manufacturing of products or rendering of service and comes back when customers make payment.
It can be observed that the process is cyclical in nature and for that reason business process is also stated as operating cycle. Each component of the business process has its own duration because of its own loop. The aggregate of the duration of all components of business is operating cycle time.
Every business entity has also a cash operating cycle – cash goes out on procurement of resources and comes in when customers make payment.
The difference between the aggregate of series of outflow of cash and the inflow of case is profit and if the difference is negative it is loss.
It is shown through the diagram as below: