Sideways has been a borrower at your bank for several years. The owner, Mike Frontline, dropped by your office to deliver his year-end financial statements. Glancing through them, you noted that both sales and inventory had decreased by substantial amounts. You asked him if his gross profit margin had changed and what had caused the decrease in inventory. He replied that his margins were virtually unchanged and that inventory shrank because his volume had gone down. Which of the following should you do to verify this information? a. Compare gross profit margins for this year and last year and calculate the change in inventory days on hand and its impact on cash flow.
b. Calculate the change in accounts payable DOH and the impact of that change on cash flow and the level of inventory.
c. Calculate the change in sales and the impact of the change in sales on inventory
d. Calculate the gross and operating profit margins for this year and last and determine the cash flow impact of any change in margins.