Question

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.

Ratio	Actual 2017	Actual 2018	Industry average, 2019
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	35.5 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	0.10
Net profit margin	0.062	0.062	0.053
Return on total assets (ROA)	0.045	0.050	0.040
Return on common equity (ROE)	0.061	0.067	0.066
Earnings per share (EPS)	$1.75	$2.20	$1.50
Price/earnings (P/E) ratio	12.0	10.5	11.2
Market/book (M/B) ratio	1.20	1.05	1.10
Historical and Industry Average Ratios for Sterling Company

Answer 1