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.

At the beginning of 2021, 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.

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2020 1.6 to 1 2021 2019 Current ratio Acid-test ratio Receivables turnover Inventory turnover 2.0 to 1 1.1 to 1 7.3 times 6.3 times 1.4 to 1 0.8 to 1 0.7 to 1 10.3 times 10.1 times 6.1 times 6.4 times