Cash conversion cycle

Cash management is a very important function of managers. Companies need to manage their operations in a way that they can sustain growth and yet not run out of cash.

Consider the case of the Loud Noise Recordings Corporation:

Loud Noise Recordings Corporation has forecasted sales of $29,000,000 for next year and expects its cost of goods sold (COGS) to remain at 80% of sales. Currently, the firm holds $2,900,000 in inventories, $2,100,000 in accounts receivable, and $2,600,000 in accounts payable.

A: Approximately how long does it take Loud Noise Recordings to convert its raw materials to its finished products and then to sell those goods? (Note: In all calculations, assume that there are 365 days in a year.)

43.35 days

38.79 days

45.63 days

47.91 days

B: On average, it takes from the time a sale is made until the time cash is collected from customers.

C: Loud Noise Recordings relies on customer credit when it buys raw materials from its suppliers. On average, it takes after the firm purchases materials before it sends cash to its suppliers.