4. Cycles of the company

The company invests constantly. Business activity begins with the contribution by one or more members of a sum of money with which certain investments are made. The company acquires, on the one hand, elements of fixed assets: facilities, machinery, furniture, etc.; and, on the other, elements of working capital: raw materials and other supplies. With these investments and the hiring of labour, the company started its activity.

Thanks to the functions of production and marketing which carries to term, manages to manufacture and sell a product. When the company comes to the amount of sales, recover the money. This process is repeated continuously throughout the life of the company, which resulted in two cycles: long cycle and short cycle.

Long cycle

The long cycle of the company begins with the collection of monetary resources and its fixed assets in fixed assets: buildings, facilities and machinery.

All these assets are eroded with the passage of time by use, obsolescence, etc. Annual amortization joins the cost of the product, allowing you to recover a portion of investment every year. When the assets are fully depreciated, the sinking fund is used to renew them, which leads to another cycle.

The duration of the cycle for each item of fixed assets is different, not the same duration, for example, for an office building than for a van can be expected. In both cases, however, it is long-cycle, since its recovery occurs after several financial periods.

Short cycle

Also referred to as the short cycle cycle of exploitation. Short cycle is called because occurs multiple times within an economic cycle and, therefore, lasts less than a year. Companies should try to that their short cycle is short as possible, since whenever it completes a cycle is achieved recover the money invested more profit margin.