P2 25: Complete the next ratios. Given the ratios, and following industry financial averages, and statements, calculate Sterling Company's financial ratios for the most recent year and make financial analysis to rations of 2015 (Assume a 365-day year).

Sterling Company Balance Sheet December 31, 2015 Liabilities and Stockholders' Equity

Items	amount
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 expenses	200,000
Net profits before taxes	1,100,000
Less: Taxes (rate = 40%)	440,000
Net profits after taxes $	660,000
Less: Preferred stock dividends	50,000
Earnings available for common stockholders $	610,000
Earnings per share (EPS)	3.05$

Sterling Company Income Statement for the Year Ended December 31, 2015

Assets		Liabilities and stockholders' equity
Cash	200,000
Marketable securities	50,000	Accounts payablea	900,000
Accounts receivable	800,000	Notes payable	200,000
Inventories	950,000	Accruals	100,000
Total current assets	2,000,000	Total current liabilities	1,200,000
Gross fixed assets (at cost)	12,000,000	Long-term debt (includes financial leases)	3,000,000
Less: Accumulated depreciation	3,000,000	Preferred stock (25,000 shares, $2 dividend)	1,000,000
Net fixed assets	9,000,000	Common stock (200,000 shares at $3 par)b	600,000
Other assets	1,000,000	Paid-in capital in excess of par value	5,200,000
		Retained earnings	1,000,000
		Total stockholders' equity	7,800,000
Total assets	12,000,000	Total liabilities and stockholders' equity	12,000,000

^aAnnual credit purchases of $6,200,000 were made during the year.

^bOn December 31, 2015, the firm's common stock closed at $39.50 per share

- 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.

Historical and Industry Average Ratios for Sterling Company

Ratio	Actual 2013	Actual 2014	Industry average 2015
Current ratio	1.4	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	35.5 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	4.5	4.2	4.2
Gross profit margin	0.30	0.27	0.25
Operating profit margin	0.12	0.12	0.12
Net profit margin	0.062	0.062	0.053
Return on total assets (ROA)	0.045	0.050	0.042
Return on common equity (ROE)	0.061	0.067	0.066
Earnings per share (EPS)	1.75	2.20	1.50
Price/earnings (PE) ratio	12.0	10.5	11.2
Market/book (M/B) ratio	1.20	1.05	1.10