The following ratios are available for Western Roofing:

Instructions

a. Calculate the collection period, days sales in inventory, and operating cycle for each year.

b. Has Western Roofing’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 Western Roofing decided to start offering customers a sales discount for early payment. The terms of credit sales were changed from n/30 to 2/10, n/30. Evaluate this decision.