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, $54,900; total assets, $259,400; common stock, $81,000; and retained earnings, $34,712) слвот СОRРORATION Income Statement For Current Year Ended Decenber 31 454,600 297,850 156,750 99,100 4,000 S3.650 21,612 32,038 Sales Cost of goods sold Gross profit Operating expenses Interest expense Income before taxes Income tax expense Net income слвот СORPORATION Balance Sheet December 31 Liabilities and Rquity Assets Cash 10,000 Accounts payable 9,200 Acerued vages payable 29,400 Income taxes payable 40,150 Long-term note payable, secured by 16,500 4,600 3,500 Short-term investments Accounts receivable, net Merchandise inventory 68,400 mortgage on plant assets Prepaid eхрenвев Plant assets, net 2,700 Common stock 149,300 Retained earnings 240,750 Total liabilities and equity 81,000 66,750 $240,750 Total assets 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. Current Ratio Choose Denominator: (1) Current Ratio Choose Numerator: Current ratio to 1 Acid-Test Ratio (2) Choose Denominator: = Acid-Test Ratio Choose Numerator: Acid-Test Ratio to 1 Compute the inventory turnover (4) Inventory Turnover Inventory Turnover Choose Denominator: Choose Numerator: =Inventory turnover times Compute the days' sales in inventory. Days Sales in Inventory (5) Choose Numerator: Choose Denominator: Days Days' Sales in Inventory х Days' sales in inventory days x Compute the debt-to-equity ratio. Debt-to-Equity Ratio Choose Denominator: (6) Debt-to-Equity Ratio Choose Numerator: Debt-to-equity ratio to 1 Compute the times interest eamed. Times Interest Earned (7) Choose Denominator: Choose Numerator: Times Interest Earned Times interest eamed с times Compute the proft margin ratio Profit Margin Ratio Choose Denominator: (8) = Profit margin ratio Profit margin ratio Choose Numerator: % Compute the days' sales uncollected. Days' Sales Uncollected (3) Choose Denominator: =Days Sales Uncollected Choose Numerator: Days х Days sales uncollected х days х

Answer 1

1.
Current Ratio = Current Assets / Current Liabilities
Current Assets = 10000+9200+29400+40150+2700 = $91450
Current Liabilities = 16500+4600+3500 = $24600

Current Ratio = $91450 / $24600 = 3.72

2.
Acid Test Ratio = (Current assets - Inventory - Prepaid Expenses) / Current Liabilities
= ($91450-40150-2700)/24600 = 1.98

3. Days Sales Uncollected = Accounts Receivable / Net Sales x 100
= $29400/454600x365 = 23.61 days

4. Inventory turnover = Cost of goods sold / Average Inventory
= $297850 / 47525 = 6.27 times
Average Inventory = ($54900+40150)/2 = $47525

5. Days sale in inventory = Ending Inventory / Cost of goods sold x 365
= 40150/297850x365 = 49.20 days

6. Debt to Equity Ratio = Total Liabilities / Total Equity
Total Liabilities = 16500+4600+3500+68400 = $93000
Total Equity = 81000+66750 = $147750

Debt to Equity Ratio = $93000 / $147750 = 0.63

7. Times Interest Earned = (Income before taxes + Interest expense) / Interest expense
= (53650+4000)/4000 = 14.41 times

8. Profit margin = Net income / Net Sales x 100
= $32038/454600x100 = 7.05%