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Finance > Corporate Finance > Short term purposes

Short term purposes

In order to run their operations, corporates buy goods from the market (raw material); process them in their own facilities (or outsource processing); convert them into saleable goods (product or finished goods) and then sell them in the market (against cash or credit i.e. a promise to get money after a short time). This entire process - also called cash cycle - takes anything between one to six months for most corporates. At each one of these stages, expenditure is incurred without any inflow of money. The inflow starts only when cash is paid (also called sales proceeds) for the goods produced by the corporate. The finance needed to fund the expenditure in the intervening period is of short-term nature (as it is to be paid back out of the sales proceeds) and is also called working capital.

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