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FreedomFreedom Corporation has 3 comma 200 comma 0003,200,000 shares of common stock outstanding. Its stock has...

FreedomFreedom Corporation has 3 comma 200 comma 0003,200,000 shares of common stock outstanding. Its stock has traded recently at $ 27.00$27.00 per share. You would like to gain a better understanding of FreedomFreedom Corporation​'s financial position. Assume all sales are on credit. Freedom Corporation Balance Sheets December 31, 2017 and 2016 (amounts in thousands) 2017 2016 Assets Current assets: Cash $5,120 $2,800 Accounts receivables 2,300 1,600 Inventory 1,800 1,200 Other current assets 3,240 2,800 Total current assets $12,460 $8,400 Other assets 22,000 18,500 Total assets $34,460 $26,900 Liabilities Total current liabilities $14,000 $13,000 Long-term liabilities 4,960 5,400 Total liabilities $18,960 $18,400 Stockholders' equity Total common stockholders' equity 15,500 8,500 Total liabilities and equity $34,460 $26,900 PrintDone Freedom Corporation Income Statement For the Year Ended December 31, 2017 (amounts in thousands) 2017 Sales revenue $14,235 Less: Cost of goods sold 4,350 Gross profit $9,885 Less: Operating expenses 885 Operating income $9,000 Less: Interest expense 400 Income before income taxes $8,600 Less: Income tax expense 6,200 Net income $2,400 Calculate the following ratios for 20172017 and interpret the​ results: e. Gross profit percentage f. Operating income percentage g. Return on​ stockholders' equity h. Earnings per share i. ​Price/earnings ratio

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Answer #1

Calculation of the given ratios (Amounts in thousands)

e) Gross Profit % for 2017 = (Gross Profit/Sales Revenue)*100

= ($9,885/$14,235)*100 = 69.44%

f) Operating Income % for 2017 = (Operating Income/Sales Revenue)*100

= ($9,000/$14,235)*100 = 63.22%

g) Return on Stockholders' Equity = Net Income for 2017/Average Stockholders' Equity

Average Stockholders' Equity = (Stockholders Equity for 2016+Stockholders Equity for 2017)/2

= ($8,500+$15,500)/2 = $12,000

Return on Stockholders' Equity = $2,400/$12,000 = 0.20 or 20%

h) Earnings per Share for 2017 = Net Income for 2017/Common Shares outstanding

= $2,400/3,200 shares = $0.75 per share

i) Price/earnings ratio = Market price per share/Earnings per share for 2017

= $27 per share/$0.75 per share = 36

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