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, $55,900; total assets, $259,400; common stock, $86,000; and retained earnings, $31,289.) 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 98,600 Interest expense 4,600 Income before taxes 55,950 Income tax expense 22,539 Net income $ 33, 411 $ Assets Cash Short-term investments Accounts receivable, net Merchandise inventory CABOT CORPORATION Balance Sheet December 31 Liabilities and Equity $ 16,000 Accounts payable 8,200 Accrued wages payable 29,400 Income taxes payable 32,150 Long-term note payable, secured by mortgage on plant assets 3,050 Common stock 152,300 Retained earnings $ 241,100 Total liabilities and equity 17,500 3,200 3,300 66,400 Prepaid expenses Plant assets, net Total assets 86,000 64,700 $ 241,100 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

Answer with working notes is given below

Current Ratio Current Assets Current Liabilities $88,800 $24,000 3.70 Current Assets = Cash + Marketable securities +Accounts Receivable + Inventory + Prepaid expense Current Liabilities Accounts payable + Accrued expenses +Income tax payable 2 Acid-test ratio Quick Current Assets* Current Liabilities $53,600 $24,000 2.23 *Excludes Inventory and prepaid expenses 3 Days Average collection period Accounts receivables Credit Sales X 365 $29,400 $456,600 23.50 Inventory Turnover Cost of Goods Sold Average Inventory (32150+55900)/2 $297,450 $44,025 6.76 5 Days Days sales in inventory 365 days Inventory turnover ratio 365 6.76 54.02 6 Debt-to-Equity Ratio Total Debt $90,400 Equity $150,700 Total Debt Current Liabilities + Long term liability 60% 7 Times Interest earned ratio Earnings Before interest and tax Interest $60,550 $4,600 13.16 EBITEBT + Interest = $55,950+$4,600 8 Profit Margin Net Profit Sales $33,411 $456,600 7.32% 9 Total Asset Turnover Sales Total Average Assets (241100+259400)/2 $456,600 $250,250 1.82 10 Return on Total Assets Net profit Total Average Assets $33,411 $250,250 13.35% 11 $33,411 Return on Common Stockholders equity Net Profit Average Stockholders equity (117289+150700)/2 24.93% $133,995