Tuesday, July 21, 2009
I found a website called Doubletongued.org that defines new catchwords.
One of the definitions that caught my eye was negative operating cycle, because it uses a real interesting example of Amazon.com vs. Best Buy. I then did a Google search and found other sites that mention this.
It seems that Amazon.com is able to sell some things, like iPods, cheaper than Best Buy because Amazon turns its inventory faster (20 days vs. 74 days).
For example, let's say that both Best Buy and Amazon get a shipment of iPods at net 45 from Apple. So they each have 45 days to pay for the shipment. If Amazon can sell all the iPods in 20 days, they can afford to sell the iPods at cost, and make their profit by investing the money from day 20 through day 45.
Best Buy, on the other hand, has to borrow money from day 45 through day 74 to pay Apple.