Chapter 3, Problem 3.25P

Learning Goals 6

P3- 25 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.)

Sterling Company Income Statement for the Year Ended December 31, 2019

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 = 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

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.