Sterling Income Statement

Sales revenue $ 10,000,000 Assets

Less: Cost of goods sold $ 7,500,000 Cash
Gross Profit $ 2,500,000 Marketable securities
Less: Operating Expenses Accounts receivable
Selling Expense $ 300,000 Inventories
General and administrative expense $ 650,000 Total current assets
Lease expense $ 50,000 Gross fixed assets (at cost)
Depreciation expense $ 200,000 Less: Accumulated depreciation
Total operating expense $ 1,200,000 Net fixed assets
Operating profits $ 1,300,000 Other assets
Less: Interest expense $ 200,000 Total Assets
Net profits before taxes $ 1,100,000
Less: Taxes (rate=40%) $ 440,000 Annual Credit Purchases
Net profits after taxes $ 660,000 Dec 31, 2015v firms common sto
Less: Preferred stock dividends $ 50,000
Earnings available for common stockholders $ 610,000

Earnings per share 3.05

 Sterling Balance Sheet
Liabilities and Stockholders Equity
$ 200,000.00 Accounts payable $ 900,000.00
Marketable securities $ 50,000.00 Notes Payable $ 300,000.00
Accounts receivable $ 800,000.00 Accruals $ 100,000.00
Inventories $ 950,000.00 Total current liabilitirs $ 1,200,000.00
Total current assets $ 2,000,000.00 Long-term debd (includes financial leases) $ 3,000,000.00
Gross fixed assets (at cost) $ 12,000,000.00 Prefferef stock (2500 sjares, 42 dividend) $ 1,000,000.00
Less: Accumulated depreciation $ 3,000,000.00 Common stick (200000 shares at $3 par) $ 600,000.00
Net fixed assets $ 9,000,000.00 Paid-in capital in excess of par value $ 5,200,000.00
Other assets $ 1,000,000.00 Retained earnings $ 1,000,000.00
Total Assets $ 12,000,000.00 Total stockholders' equity $ 7,800,000.00
Total liabilities and stockholder's equity $ 12,000,000.00
Annual Credit Purchases $ 6,200,000.00
Dec 31, 2015v firms common sto 39.5
 Ratio 2013 2014 2015 Industry 2015
Current ratio
1.4 1.55 1.67 1.85
Current Assets/Current Liabilities
Quick Ratio
1 0.92 0.88 1.05
Current assets-inventory/current liabilities
Inventory turnover
9.52 9.21 7.89 8.6
25000 Cogs/Inventory
200000 Average collection period
45.6 36.9 29.20 35.5
Accounts receivable/average sales per day
Average payment period
59.3 61.6 52.98 46.4
Accounts payable/average purchases per day
Total asset turnover
0.74 0.8 0.83 0.74
Sales/total assets
Debt ratio
0.2 0.2 0.35 0.3
Total liabilities/total assets
Times interest earned ratio
8.2 7.3 6.50 8
earning before interest and taxes/interest
Fixed-payment coverage ratio
4.5 4.2 5.40 4.3
(EBIT+FC)/(FC+interest charge)
Gross profit margin
0.3 0.27 0.25 0.25
Gross profit/sales
Operating profit margin
0.12 0.12 0.13 0.2
Operating profits/sales
Net profit margin
0.062 0.062 0.07 0.053
Net income/total sales
Return of total assets (ROA)
0.045 0.05 0.06 0.04
Net income/total asset
Return of common equity) ROE)
0.061 0.067 0.08 0.066
Net income/stockholders equity
Earnings per share (EPS)
1.75 2.2 $ 3.05 1.5
(Net income-preferred dividends)/weighted average of common shares outstanding
Price/earning (P/E) Ratio
12 10.5 $ 12.95 11.2
Market value per share/earning per share
Marker/book (M/B) ratio
1.2 1.05 $ 1.01 1.1
(Outstanding shares x market value)/(total ass
Time Series Analysis Cross Section Analysis
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 Remarks
Sterling company have the ability to fullfill their short-term obligations and greater degree of liquidity. It is caused by the in
current liabilities. But if compared to the industry average, its current ratio is still lower because there are possibilities that th
Sterling Company may incur more inventory cost from year to year which make the ratio decrease as well as if it is compared
cost of Sterling Company is getting increase due to its industry type which is having low inv
Related to its quick ratio, the inventory turnover of Sterling Company is getting deccrease due to increase in inventory co
Company is having trouble to convert its inventory to cash due to lower sale
the sooner the beeter but average collection period depends on the firm's credit terms. It shows that Sterling Company is h
departement, or both which makes Sterlung can receive more cash earlier to fund the oper
Assumption: The Sterling Company's purhcases equaled to 70% of its COGS. The longer the better where the firm can negotia
focus to collect its account receivable.

The higher the more efficient assets that been used. It shows that the operation of Sterling Company have been financi

In 2015 the Company is having more liabilities compared before

Time interest earned ratio is decreasing year by year and it is below the average in

The greater the ratio, the lower it's risk.

in 2015, Sterling companies incur more COGS compared previous year which makes the gross p

In 2015, Sterling Companies may incure less expense compared previous year which makes operati

In 2015, Sterling Company may incur more interest and taxes compared previous year which makes

Sterling Company seems consistentely generate the profit with its available assets and even better com

According to its net profit margin, it can be assumed that Sterling Company may incur less common stock equity in

The EPS is increasing and it is higher than the average industry.

The higher, the greater investor's confidence.

The M/B Ratio is decreasing by years and it is lower below the average indust
Johnson 2013 2014 2015
Financial leverage multiplier 1.75 1.75 1.85
Net profit margin 0.059 0.058 0.049
Total asset turnover 2.11 2.18 2.34
Industry averages
Financial leverage multiplier 1.67 1.69 1.64
Net profit margin 0.054 0.047 0.041
Total asset turnover 2.05 2.13 2.15

A. DuPont system of analysis

Johnson 2013 2014 2015

ROA% 12.45% 12.64% 11.47% Net profit margin x total asset turnover
ROE % 21.79% 22.13% 21.21% ROA x financial leverage multiplier
Industry averages
ROA% 11.07% 10.01% 8.82% Net profit margin x total asset turnover
ROE% 18.49% 16.92% 14.46% ROA x financial leverage multiplier

From the analysis, ROE from Johnson and industry has fallen, but johnson experienced much smaller decline in its R
This can happened because both industry and Johnson's asset has increased.
Beside that, only Johnson shows an increase in leverage from 2014 to 2015, while Industry have had less stability.
Between 2013 and 2014, leverage for industry increased, while it decreased between 2014 and 2015

Areas that needs further analysis from Johnson areprofitability and debt
The total asset turnover is increasing and it is larger than other industry, johnson also generating an appropriate sa
But why is the net profit margin is falling?
d much smaller decline in its ROE.

ustry have had less stability.

2014 and 2015

generating an appropriate sales level for the given assets.