Integrative-Complete ratio analysis 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, 2019 Sales revenue $10,014,000 Less: Cost of goods sold 7,488,000 Gross profits $2,526,000 Less: Operating expenses Selling expense $293,000 General and administrative expenses 641,000 Lease expense 48,800 Depreciation expense 223,000 Total operating expense 1,205,800 Operating profits $1,320,200 Less: Interest expense 205,000 Net profits before taxes $1,115,200 Less: Taxes (rate = 21%) 234,192 Net profits after taxes $881,008 Less: Preferred stock dividends 49,200 Earnings available for common stockholders $831,808 Earnings per share (EPS) $4.24 icon here in order to copy the contents of the data table below into a spreadsheet.) Sterling Company Balance Sheet December 31, 2019 Assets Liabilities and Stockholders' Equity Current assets Current liabilities Cash $217,000 Accounts payable [b] $890,000 Marketable securities 49,600 Notes payable 207,000 Accounts receivable 809,000 Accruals 99,000 Inventories 959.000 Total current liabilities $1,196,000 Total current assets $2,034,600 Long-term debt (includes financial leases) [C] $2,951,600 Gross fixed assets (at cost) [a] $11,983,000 Stockholders' equity Less: Accumulated depreciation 3,010,000 Preferred stock (27,200 Net fixed assets $8,973,000 shares, $2.50 dividend) $1,002,000 Common stock (196,000 Other assets $997,000 shares at $3.25 par) (d) 637,000 Paid-in capital in excess of par value 5,196,000 Retained earnings 1,022,000 Total stockholders' equity $7,857,000 Total liabilities and Total assets $12,004,600 stockholders' equity $12,004,600 [a] The firm has an 8-year financial lease requiring annual beginning-of-year payments of $48,800. Five years of the lease have yet to run. [a] The firm has an 8-year financial lease requiring annual beginning-of-year payments of $48,800. Five years of the lease have yet to run. [b] Annual credit purchases of $6,199,000 were made during the year. [c] The annual principal payment on the long-term debt is $89,000. [d] On December 31, 2019, the firm's common stock closed at $40.73 per share. Historical and Industry Average Ratios for Sterling Company Ratio Actual 2017 Actual 2018 Industry average, 2019 Current ratio 1.43 1.58 1.88 Quick ratio 1.02 0.94 1.07 Inventory turnover 9.44 9.13 8.52 Average collection period 45.9 days 37.2 days 35.80 days Average payment period 58.7 days 61.0 days 45.8 days Total asset turnover 0.74 0.80 0.74 Debt ratio 0.20 0.20 0.30 Times interest earned ratio 8.1 7.9 Fixed-payment coverage ratio 5.0 4.7 4.7 Gross profit margin 0.30 0.27 0.25 Operating profit margin 0.12 0.12 0.10 Net profit margin 0.084 0.084 0.075 Return on total assets (ROA) 0.063 0.068 0.058 Return on common equity (ROE) 0.092 0.098 0.097 Earnings per share (EPS) $2.94 $3.39 $2.69 Pricelearnings (P/E) ratio 8.6 7.1 7.8 Market/book (M/B) ratio 1.20 1.05 1.10 7.2
