3. 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 Red Hamster Manufacturing Inc.:

Red Hamster Manufacturing Inc. has forecasted sales of $24,000,000 for next year and expects its cost of goods sold (COGS) to remain at 70% of sales. Currently, the firm holds $3,100,000 in inventory, $2,200,000 in accounts receivable, and $2,800,000 in accounts payable.

Approximately how long does it take Red Hamster Manufacturing to convert its raw materials to its finished products and then to sell those goods? (Note: Use 365 days as the length of a year in all calculations, and round all values to two decimal places.)

A. 67.35 days

B. 63.98 days

C. 57.25 days

D. 47.15 days

On average, it takes________(33.46/35.13/25.10/30.11) from the time a sale is made until the time cash is collected from customers.

Red Hamster Manufacturing relies on customer credit when it buys raw materials from its suppliers. On average, it takes_________(48.66/66.91/57.79/60.83) after the firm purchases materials before it sends cash to its suppliers.

What is the length of Red Hamster Manufacturings cash conversion cycle (CCC)?

A. 41.98 days

B. 39.98 days

C. 45.98 days

D. 33.98 days

In general, firms prefer a _________(longer/shorter) CCC.