14#3

Corporation reported these figures:

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Independence

Corporation has

2,000,000

shares of common stock outstanding. Its stock has traded recently at

$33.30

per share. You would like to gain a better understanding of

Independence

Corporation's

financial position. Assume all sales are on credit.Read the requirement

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.

a. Inventory turnover

Enter the formula on the first line, then calculate the inventory turnover on the next line. (Enter amounts in thousands as provided to you in the problem statement. Round your answer to one decimal place.)

	/		=	Inventory turnover
	/		=

Independence			times per year. To determine if this seems reasonable, a comparison with
		would be necessary to reach a better conclusion.

b. Days' sales in receivables

Enter the formula on the first line, then calculate the days' sales in average receivables on the next line. (Enter amounts in thousands as provided to you in the problem statement. Round your answer to one decimal place.)

	/		=	Days' sales in average receivables
	/		=		days

It takes Independence		days to					Based on a typical 30 days' sales in average
receivables that most companies expect, this is					This
collecting from customers. A possible solution might be

c. Acid-test ratio

Enter the formula on the first line, then calculate the acid-test ratio on the next line. (Enter amounts in thousands as provided to you in the problem statement. Abbreviation used: ST = short-term. Round your answer to two decimal places. For accounts with a zero balance enter $0 where appropriate.)

										Acid-test
(		+		+		)	/		=	ratio
(		+		+		)	/		=

Independence

can pay off

all of its liabilities with its long-term assets

just over half of its current liabilities with its most liquid assets

just over half of its total liabilities with its most liquid assets

. Due to a

long

short

receivables collection time, the receivables

are more liquid than cash and equivalents

may not be as liquid as cash and equivalents

. This

is a good sign

may be a cause of concern for management

.

d. Times-interest-earned

Enter the formula on the first line, then calculate the times-interest-earned on the next line. (Enter amounts in thousands as provided to you in the problem statement. Round your answer to one decimal place.)

	/		=	Times-interest-earned
	/		=

Independence's			times. There
servicing its debt according to this ratio.

e. Gross profit percentage

Enter the formula on the first line, then calculate the gross profit percentage on the next line. (Enter amounts in thousands as provided to you in the problem statement. Round your answer to one decimal place.)

	/		=	Gross profit percentage
	/		=		%

	% of each sales dollar is gross profit for the company. This is a			gross profit percentage but should be compared
to the		to better determine if it is reasonable.

f. Operating income percentage

Enter the formula on the first line, then calculate the operating income percentage on the next line. (Enter amounts in thousands as provided to you in the problem statement. Round your answer to one decimal place.)

	/		=	Operating income percentage
	/		=		%

	% of each sales dollar is income for the company. This is a			operating income percentage but should be compared
to the		to better determine if it is reasonable.

g. Return on stockholders' equity

Enter the formula on the first line, then calculate the return on stockholders' equity on the next line. (Enter amounts in thousands as provided to you in the problem statement. Round the percentage to the nearest whole percent. For accounts with a zero balance enter $0 where appropriate.)

(				)	/		=	Rate of return on equity
(				)	/		=		%

If we assume any double digit rate of return on equity is strong, we can say Independence Corporation has a				return
because the return on stockholders' equity is		%.

h. Earnings per share

Enter the formula on the first line, then calculate the EPS on the next line. (Enter net income in thousands as provided to you in the problem statement. Enter the shares of outstanding common stock in thousands as well, although it is not given in thousands in the data provided to you. Round your answer to the nearest cent. For accounts with a zero balance enter $0 where appropriate.)

(				)	/		=	EPS
(				)	/		=

Independence generates

of $

per share of common stock.

i. Price/earnings ratio

Enter the formula on the first line, then calculate the P/E ratio on the next line. (Round your answer to one decimal place.)

	/		=	P/E ratio
	/		=		times

According to this ratio, the		of one share of stock is		times the
per one share of stock. A comparison in			is needed to determine if this stock is
overpriced or underpriced compared to the industry.

Balance sheet

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Independence Corporation
Balance Sheets
December 31, 2017 and 2016
(amounts in thousands)
	2017	2016
Assets
Current assets:
Cash	$3,110	$2,200
Accounts receivables	2,500	2,420
Inventory	2,000	1,400
Other current assets	1,850	2,280
Total current assets	$9,460	$8,300
Other assets	23,000	16,500
Total assets	$32,460	$24,800
Liabilities
Total current liabilities	$11,000	$10,000
Long-term liabilities	11,460	9,800
Total liabilities	$22,460	$19,800
Stockholders' equity
Total common stockholders' equity	10,000	5,000
Total liabilities and equity	$32,460	$24,800

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Income statement

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Independence Corporation
Income Statement
For the Year Ended December 31, 2017
(amounts in thousands)
	2017
Sales revenue	$14,965
Less: Cost of goods sold	5,270
Gross profit	$9,695
Less: Operating expenses	7,395
Operating income	$2,300
Less: Interest expense	100
Income before income taxes	$2,200
Less: Income tax expense	400
Net income	$1,800

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