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, $219,400; common stock, $80,000; and retained earnings, $34,161.)

CABOT CORPORATION Income Statement For Current Year Ended December 31
Sales	$	454,600
Cost of goods sold		297,950
Gross profit		156,650
Operating expenses		99,100
Interest expense		4,400
Income before taxes		53,150
Income tax expense		21,411
Net income	$	31,739

CABOT CORPORATION Balance Sheet December 31
Assets				Liabilities and Equity
Cash	$	14,000		Accounts payable	$	18,500
Short-term investments		8,800		Accrued wages payable		4,400
Accounts receivable, net		33,400		Income taxes payable		3,000
Merchandise inventory		32,150		Long-term note payable, secured by mortgage on plant assets		72,400
Prepaid expenses		2,550		Common stock		80,000
Plant assets, net		153,300		Retained earnings		65,900
Total assets	$	244,200		Total liabilities and equity	$	244,200

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.)

Compute the current ratio and acid-test ratio.

	(1) Current Ratio Choose Numerator: / Choose Denominator: = Current Ratio Current assets / Current liabilities = Current ratio $82,100 / $18,500 = 4.4 to 1 (2) Acid-Test Ratio Choose Numerator: / Choose Denominator: = Acid-Test Ratio / Current liabilities = Acid-Test Ratio / = 0 to 1

Compute the debt-to-equity ratio.

	(6) Debt-to-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-to-Equity Ratio Total liabilities / Total equity = Debt-to-equity ratio / = 0 to 1

• Req 5

Compute the times interest earned.

	(7) Times Interest Earned Choose Numerator: / Choose Denominator: = Times Interest Earned + / = Times interest earned + / = 0 times

• Compute the profit margin ratio.

  	(8) Profit Margin Ratio Choose Numerator: / Choose Denominator: = Profit margin ratio / = Profit margin ratio / = 0 %

• Compute the total asset turnover.

  	(9) Total Asset Turnover Choose Numerator: / Choose Denominator: = Total Asset Turnover / = Total asset turnover / = 0 times

• Compute the return on total assets.

  	(10) Return on Total Assets Choose Numerator: / Choose Denominator: = Return on Total Assets / = Return on total assets / = 0

• Compute the return on common stockholders' equity.

  	(11) Return on Common Stockholders' Equity Choose Numerator: / Choose Denominator = Return On Common Stockholders' Equity - / = Return on common stockholders' equity - / = 0 %

Answer 1

(1) Current Ratio to 1 Choase Numerator Choose Denominator = Current Ratio Current assets Current liabilities - Cwozent Ratio $ 90,900 / $ 25,900 = 3.51 Calculation: wurent Assets = ( Cash + short term investments + Accounts heceivable, net + Merchandise Inventory + Prepaid expenses) 1,000 + $ 8,800 + $ 33,400 + $ 32,10 $2,550 $ 90,900 Current w'abilities = Accounts Payable + Accrued wages payable + Income taxes payable = ($18,500 + $4,400 + $ 3,000 = $ 25,900 Acid- Text Ratio Choose Numerator / Choose Denominator = Acid- Test Ratio Quick assets Current liabilities - Acid- Test Ratio $ 56,200 $ 25,900 = 2.17 to 1 Calculation: Quick Assets = ( Current Assets - Merchandise Inventory Prepaid expenses) = ($ 90,900 - $ 32,150 - $ 2,550) $ 56,200

Days' sales Uncollected Choose Choose Num orator Denominator X Days Days sales uncollected Current receivables / Net sales (x365 - Days' sales uncollected $ 33,400 / $454,600 26.82 days Calculation: worent Receivables = Accounts receivable, net = $ 33,400 4 Inventory Turnover choose Numeraton Choose Denominatam inventory Turnover Cast of goods sold / Average Inventory – Inventory Turnover $ 297, 950 111 & 44,025 6.77 times Calculation : Average Inventory = Beginning inventory & Ending Inventory Average Inventory = $55,900 + $ 32,150 2 = $88,050 = $ 44,025 Days' sales in Inventory Choose Choose x Days - Days sales în Numerator Denominator Days Inventory Merchandise Cost of Days sales in Inventory $ 32,150 1 & 297,950 x 365 = 39.38 days goods sold X1 365 inventory

(6) Debt-to - Equity Ratio Choose Numerator / Choose Denominator Debt-to-Equity Rat! Total liabilithes Total equity = Debt-to-Equity Ratio $ 98,300 $ 145,900 = 0.67 to 1 Calculation. Total liabilities = (current liabilities & Long term notes payable) - $ 25,900 + $12,400) $ 98,300 Total equity - Common stock & Retained earnings $ 80,000 + $ 65,900 $ 145,900 (7) Choose Numerator Times interest Earned Choose Times interest Denominato. Earned interest Times Interest Expense Earned Income before tax t Interest Expense $ 53,150 + $ 4,400 & 4,400 13.00 times Prefit Margin Ratio Choose Numerator Choose Denominator 15 Net sales - $ 454,600 = Profit margin Ratio Profit margin Ratio 6.98 Net Income $ 31,739

09) Total Asset Turnover Total Choose Denominator = Choose Numerator asset Twinover I Met sales 1 Average Total - Total Asset Assets Turnover $ 454,600 $ 231,800 1.96 times Calculation: Ending Average Total Assets = [(Beginning Total Assets & Total Assets) = 2 = [ $219,400 + $244,200) 2] = ($463,600 +22) = $ 231,800 Return on Total Choose Numeraton / Choose Denominator Net Income 1 Average Total assets $ 31,739 / $ 231,800 Assets Return on Total Assets = Return on Total Assets 13169 calculation : • Total Assets are calculated above in part (9)

Common stock/= Return on Common Stockholders equity choose Return on common Choose Numerator Denominator stock holders en Net Preferred | Average Return on common Income Dividends holders equity stockholders equity & 31,739 1780 1 $ 130,031 = 24.41 / Calculation: Average common stockholders' equity = [( Beginning common stock + Ending common stock & Beginning Retained earnings + Ending Retouned earnings): 2 = ( $80,000 + $ 80,000+ $ 34,161 + $ 65,900) = 2 $ 260,061 : 2 $ 130,031