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 $27,000,000 for next year and expects its cost of goods sold (COGS) to remain at 70% of sales. Currently, the firm holds $3,200,000 in inventories, $1,900,000 in accounts receivable, and $2,700,000 in accounts payable.

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.)

A-46.35 days

B-61.80 days

C-52.53 days

D-43.26 days

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

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