Given the following financial statements, historical ratios, and industry averages, calculate Sterling Company's financial ratios for the most recent year. (Assume a 365-day year.) Analyze its overall financial situation from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm's liquidity, activity, debt, profitability, and market.

The current ratio is _____. (Round to two decimal places.)

Sterling Company Income Statement for the Year Ended December 31, 2022
Sales revenue		$10,000,000
Less: Cost of goods sold		7,500,000
Gross profits		$2,500,000
Less: Operating expenses
Selling expense	$300,000
General and administrative expenses	650,000
Lease expense	50,000
Depreciation expense	200,000
Total operating expense		1,200,000
Operating profits		$1,300,000
Less: Interest expense		200,000
Net profits before taxes		$1,100,000
Less: Taxes (rate=21%)		231,000
Net profits after taxes		$869,000
Less: Preferred stock dividends		50,000
Earnings available for common stockholders		$819,000
Earnings per share (EPS)		$4.10

Sterling Company Balance Sheet December 31, 2022
Assets			Liabilities and Stockholders' Equity
Current assets			Current liabilities
Cash	$200,000		Accounts payable [b]	$900,000
Marketable securities	50,000		Notes payable	200,000
Accounts receivable	800,000		Accruals	100,000
Inventories	950,000		Total current liabilities	$1,200,000
Total current assets	$2,000,000		Long-term debt (includes
			financial leases) [c]	$3,000,000
Gross fixed assets (at cost) [a]	$12,000,000		Stockholders' equity
Less: Accumulated depreciation	3,000,000		Preferred stock (25,000
Net fixed assets	$9,000,000		shares, $2.00 dividend)	$1,000,000
			Common stock (200,000
Other assets	$1,000,000		shares at $3.00 par) [d]	600,000
			Paid-in capital in excess of
			par value	5,200,000
			Retained earnings	1,000,000
			Total stockholders' equity	$7,800,000
			Total liabilities and
Total assets	$12,000,000		stockholders' equity	$12,000,000

[a] The firm has an 8-year financial lease requiring annual beginning-of-year payments of $50,000. Five years of the lease have yet to run.

[b] Annual credit purchases of $6,200,000 were made during the year.

[c] The annual principal payment on the long-term debt is $100,000.

[d] On December 31, 2022, the firm's common stock closed at $39.50 per share.

Historical and Industry Average Ratios for Sterling Company

Ratio

Actual 2020

Actual 2021

Industry average, 2022

Current ratio

1.40

1.55

1.85

Quick ratio

1.00

0.92

1.05

Inventory turnover

9.52

9.21

8.60

Average collection period

45.6

days

36.9

days

35.50

days

Average payment period

59.3

days

61.6

days

46.4

days

Total asset turnover

0.74

0.80

0.74

Debt ratio

0.20

0.20

0.30

Times interest earned ratio

8.2

7.3

8.0

Fixed-payment coverage ratio

4.9

4.6

4.6

Gross profit margin

0.30

0.27

0.25

Operating profit margin

0.12

0.12

0.10

Net profit margin

0.083

0.083

0.074

Return on total assets (ROA)

0.062

0.067

0.057

Return on common equity (ROE)

0.091

0.097

0.096

Earnings per share (EPS)

$2.80

$3.25

$2.55

Price/earnings (P/E) ratio

8.6

7.1

7.8

Market/book (M/B) ratio

1.20

1.05

1.10