The following ratios are available for Satellite Mechanical:

Instructions
(a) Calculate the collection period, days sales in inventory, and operating cycle in days for each year.
(b) Has Satellite Mechanical's liquidity improved or weakened over the three-year period? Explain.
(c) Do changes in turnover ratios affect profitability? Explain.
(d) Do changes in turnover ratios affect cash flow? Explain.
TAKING IT FURTHER
At the beginning of 2014, the owner of Satellite Mechanical decided to eliminate sales discounts because she thought it was costing the company too much money. The terms of credit sales were changed from 2/10, n/30 to n/30. Evaluate this decision.

Transcribed Image Text:

Current ratio Acid-test ratio Receivables turnover Inventory turnover 2015 2.0 to 1 1.1 to 1 7.3 times 6.3 times 2014 1.6 to 1 0.8 to 1 10.1 times 6.1 times 2013 1.4 to 1 0.7 to 1 10.3 times 6.4 times