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, \$189.400 common stock, $89,000; and retained earnings $38,032.)

CABOT CORPORATION Income Statement For Current Year Ended December 31 Sales $ 450,600 Cost of goods sold 297,150 Gross profit 153,450 Operating expenses 99,300 Interest expense 4.300 Income before taxes 49,850 Income tax expense 20,082 Net income 29, 768 Assets Cash Short-term investments Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets CABOT CORPORATION Balance Sheet December 31 Liabilities and Equity 20,000 Accounts payable 9,200 Acerued wages payable 29,400 Income taxes payable 38,150 Long-term note payable, secured by mortgage on plant assets 2,550 Common stock 149,300 Retained earnings $ 248,600 Total liabilities and equity 16,500 3,800 4,100 67,400 89,000 67,800 248,600 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

1)	Current Ratio
	Choose Numerator	/	Choose Denominator	=	Current Ratio
	Total Current Assets	/	Total Current Liabilities	=	Current Ratio
	$99,300	/	$24,400	=	4.07	to 1
	** $20,000 + $9,200 + $29,400 + $38,150 + $2,550 = $99,300;
	*** $16,500 + $3,800 + $4,100 = $24,400.
2)	Acid-Test Ratio
	Choose Numerator	/	Choose Denominator	=	Acid-Test Ratio
	Total Quick Assets	/	Total Current Liabilities	=	Acid-Test Ratio
	$58,600	/	$24,400	=	2.4	to 1
	** $20,000 + $9,200 + $29,400 = $58,600

3)	Days' sales uncollected
	Choose Numerator	/	Choose Denominator	*	Days	=	Days' sales uncollected
	Accounts Receivable	/	Net Sales	*	365	=	Days' sales uncollected
	$29,400	/	$450,600	*	365	=	24	Days

4)	Inventory Turnover
	Choose Numerator	/	Choose Denominator	=	Inventory Turnover
	Cost of Goods Sold	/	Average Inventory	=	Inventory Turnover
	$297,150	/	$47,025	=	6.32	times
	** $38,150 + $55,900 = $94,050/2 = $47,025

5)	Days' Sales in Inventory
	Choose Numerator	/	Choose Denominator	*	Days	=	Days' Sales in Inventory
	Ending Inventory	/	Cost of Goods Sold	*	365	=	Days' Sales in Inventory
	$38,150	/	$297,150	*	365	=	47	Days

6)	Debt-to-Equity Ratio
	Choose Numerator	/	Choose Denominator	=	Debt-to-Equity Ratio
	Total Liabilities	/	Total Stockholders' Equity	=	Debt-to-Equity Ratio
	$91,800	/	$156,800	=	0.59	to 1
	** $16,500 + $3,800 + $4,100 + $67,400 = $91,800
	** $89,000 + $67,800 = $156,800

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