Question

Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31 of the prior year were inventory, $53,900; total assets, $209,400; common stock, $86,000; and retained earnings, $28,689.) CABOT CORPORATION Income Statement For Current Year Ended December 31 Sales $ 456,600 Cost of goods sold 297,450 Gross profit 159,150 Operating expenses 98,800 Interest expense 4,400 Income before taxes 55,950 Income tax expense 22,539 Net income $ 33,411 CABOT CORPORATION Balance Sheet December 31 Assets Liabilities and Equity Cash $ 14,000 Accounts payable $ 17,500 Short-term investments 9,200 Accrued wages payable 2,800 Accounts receivable, net 29,000 Income taxes payable 3,500 Merchandise inventory 34,150 Long-term note payable, secured by mortgage on plant assets 70,400 Prepaid expenses 2,650 Common stock 86,000 Plant assets, net 153,300 Retained earnings 62,100 Total assets $ 242,300 Total liabilities and equity $ 242,300 Required: Compute the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory turnover, (5) days' sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity. (Do not round intermediate calculations.)

Answer 1

Ratios:
S.No.	Ratio	Formula	Calculation	Result
1	current ratio	CA/CL	(14000+9200+29000+34150+2650)/(17500+2800+3500)	3.74
2	acid-test ratio	(CA-INV.)/CL	(14000+9200+29000+2650)/(17500+2800+3500)	2.30
3	days sales uncollected, days	AR*365/Sales	29000*365/456600	23.18
4	inventory turnover	COGS/Avg. Inv.	297450*2/(53900+34150)	6.76
5	days sales in inventory, days	365/Inv. Turnover	365/6.7564	54.02
6	debt to equity	total debt/total SH Eq.	(17500+2800+3500+70400)/(86000+62100)	0.64
7	times inerest earned	EBIT/interest exp.	(159150-98800)/4400	13.72
8	profit margin	NI/Sales	33411/456600	0.07
9	total asset turnover	Sale/Avg. TA	456600*2/(209400+242300)	2.02
10	return on total assets	NI/total assets	33411/242300	0.14
11	return on common stockholders' equity	NI/total Sh Eq.	33411/(86000+62100)	0.23