Banking · Operating Cycle and Working Capital
Which of the following statements correctly explains the relationship between a borrower's Operating Cycle and their working capital requirements?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The length of the operating cycle has no significant correlation with the maximum permissible bank finance calculation.
- 2A longer operating cycle implies that funds are blocked in the production/sales process for a longer period, creating a higher financing need.✓
- 3A longer operating cycle implies that cash is released quickly, leading to lower working capital requirements.
- 4A shorter operating cycle indicates slow movement of inventory and implies lower financing needs.
Correct answer
A longer operating cycle implies that funds are blocked in the production/sales process for a longer period, creating a higher financing need.
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