What benefit does a Negative Operating Cycle get you?
February 17, 2012 12:19 PM Subscribe
What benefit does a Negative Operating Cycle get you? Other than just cash on hand. Amazon has a lot of cash because they practice Just In Time inventory management & sell out of their products before the bill for that product comes due. Other companies pay the bill first & then wait for the stock to sell out to recoup their money. Aside from the benefit of having cash on hand, what benefit do you get from this?
I recently stumbled on this slide
from this excellent presentation
, which led me to this NY Times article
about Amazon's Negative Operating Cycle.
This has me wondering - what are the specific benefits? Why were stock investors so excited about this concept?
I have my own conjecture about how this benefits them and I think I'm fairly on the mark- but I want to ask the hive mind to see if there's a better, more accurate answer out there. I'll share my thoughts on this after a bit (I don't want to influence the response too much one way or the other).
Also how realistic is it that Amazon sees money from goods sold in 2 days? I'm not really aware of many payment processors that do that, but if they're their own payment processor then it would make more sense that they could get money in 2 days from Visa etc. directly.