Permanent Versus Transitory Earnings Entrust, Inc., is a global provider of security software; it operates in one business segment involving the design, production, and sale of software products for securing digital identities and information. The consolidated statements of operations for a three-year period (all values in thousands) follows. On January 1, Year 1, the Entrust common shares traded at $10.40 per share; by year end Year 3, the shares traded at $3.80 per share. The company's cash flow from operations was $(27,411), $(20,908), and $9,606, for Year 1, Year 2, and Year 3, respectively. Calculate the sustainable earnings of Entrust, Inc., for each of the three years. Compare the company's reported net income (loss) with its sustainable earnings. Does Entrust's share price at year-end Year 3 reflect the firm's apparent turn-around? Why or why not? ENTRUST, INC. Consolidated Statements of Operations Year Ended December 31 (s thousands) Year 3 Year 2 Year 1 Revenues Product $31,945 $33,624 $47,384 Services and maintenance 61,662 56,920 58,013 Total revenues 93,607 90,544 105,397 Cost of Revenues Product $4,379 $5,571 $5.511 Services and maintenance 29,105 29,825 32,073 Amolardiovadi STAR Return to course Business Course Year 3 reflect the firm's apparent turn-around? Why or why not? ENTRUST, INC. Consolidated Statements of Operations Year Ended December 31 ($ thousands) Year 3 Year 2 Year 1 Revenues Product $31,945 $33,624 $47,384 Services and maintenance 61,662 56,920 58,013 Total revenues 93,607 90,544 105,397 Cost of Revenues Product $4,379 $5,571 $5,511 Services and maintenance Amortization of purchased product rights 29,105 29,825 32,073 384 568 Total cost of revenues 1,136 33,868 35,964 38,720 59,739 54,580 66,677 Gross profit Operating expenses Sales and marketing Research and development 26,322 I 34,985 44,128 General and administrative 17,266 22,566 24,151 12,569 13,143 14,840 Impairment of purchased product rights Restructuring charges and adjustments Total operating expenses Income (loss) from operations 1,364 (1,359) 14,178 (1,309) 56,157 86,236 80,451 3,582 (31,656) (13,774) Other income (expense) Interest income Foreign exchange gain (loss) 1,281 1,680 3,346 Loss from equity investments 429 (431) (72) Realized loss on investments (1,341) (833) (832) Write-down of long-term strategic investments (2.780) (450) (2,780) (1.238) Business Course Return to course Sales and marketing 26,322 34,985 44,128 Research and development 17,266 22,566 24,151 General and administrative 12,569 13,143 14,840 1,364 (1,359) 14,178 (1,309) Impairment of purchased product rights Restructuring charges and adjustments Total operating expenses Income (loss) from operations Other income (expense) Interest income 56,157 86,236 80,451 3,582 (31,656) (13,774) 1,281 1,680 3,346 429 (431) (72) (1,341) (833) (832) (2,780) (450) Foreign exchange gain (loss) Loss from equity investments Realized loss on investments Write-down of long-term strategic investments Total other income (expense) Income (loss) before income taxes and minority interest Noncontrolling interest in subsidiary Income (loss) before income taxes (2,780) (1,238) 369 (5,144) 754 3,951 (36,800) (13,020) 4. 3,955 (36,800) (13,020) Provision for income taxes 1,542 442 1,055 Net income (loss) $ 2,413 $(37,242) $(14,075) Calculate the sustainable earnings of Entrust, Inc., for each of the three years. Remember to use negative signs with answers, when appropriate. Year 3 Year 2 Year 1 Permanent earnings $ X $ x $ X Check