Question

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $50,900, total assets, $209,400, common stock, $83,000; and retained earnings, $40,300.) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 $ 454,608 298,158 156,45e 99,400 Sales Cost of goods sold Gross profit operating expenses Interest expense Income before taxes Income taxes 4,300 52,750 21,250 Net income 31,5ee CABOT CORPORATION Balance Sheet December 31, 2017 ASsets Cash Liabilities and Equity 20,000 Accounts payable 8,400 Accrued wages payable 34,eee Income taxes payable 3,see 36,15e Long-tern note payable, secured by mortgage $ 19,see 5,e0e 4,400 Short-term investments Accounts receivable, net Notes receivable (trade) Merchandise inventory 69,400 on plant assets Prepaid expenses Plant assets, net 2,750 Common stock 148,300 Retained earnings $ 253,100 Total 1iabilities and equity 63,000 71,s00 253, 100 Total assets These are short-term notes receivable arising from customer (trade) sales. Required:

Answer 1

1) Current Ratio

Current assets= $20000+8400+34000+3500+36150+2750= $104800

Current liabilities= $19500+5000+4400= $28900

Current Ratio
	Choose Numerator	/	Choose Denominator	=	Current Ratio
	Current Assets	/	Current Liabilities	=	Current Ratio
2017	$104800	/	28900	=	3.63	to 1

2) Acid Test Ratio

Quick Assets= $20000+8400+34000+3500= $65900

Acid Test Ratio
	Choose Numerator	/	Choose Denominator	=	Acid Test Ratio
	Quick Assets	/	Current Liabilities	=	Acid Test Ratio
2017	$65900	/	28900	=	2.28	to 1

3) Days' Sales Uncollected

Current Receivables= $34000+3500= $37500

Days' Sales Uncollected
	Choose Numerator	/	Choose Denominator	*	Days	=	Days' Sales Uncollected
	Current Receivables	/	Net sales	*	365	=	Days' Sales Uncollected
2017	$37500	/	454600	*	365	=	30.11	days

4) Inventory Turnover

Average Inventory= $(50900+36150)/2= $43525

Inventory Turnover
	Choose Numerator	/	Choose Denominator	=	Inventory Turnover
	Cost of Goods Sold	/	Average Inventory	=	Inventory Turnover
2017	$298150	/	43525	=	6.85	times

5) Days' Sales in Inventory

Average Inventory= $(50900+36150)/2= $43525

Days' Sales in Inventory
	Choose Numerator	/	Choose Denominator	*	Days	=	Days' Sales in Inventory
	Average Inventory	/	Cost of Goods Sold	*	365	=	Days' Sales in Inventory
2017	$43525	/	$298150	*	365	=	53.28	days

6) Debt-to-Equity Ratio

Total liabilities= $19500+5000+4400+69400= $98300

Total equity= $83000+71800= $154800

Debt-to-Equity Ratio
	Choose Numerator	/	Choose Denominator	=	Debt-to-Equity Ratio
	Total liabilities	/	Total equity	=	Debt-to-Equity Ratio
2017	$98300	/	154800	=	0.64	to 1

7) Time Interest Earned

Time Interest Earned
	Choose Numerator			/	Choose Denominator	=	Time Interest Earned
	Income before tax	+	Interest Expense	/	Interest Expense	=	Time Interest Earned
2017	$52750	+	4300	/	4300	=	13.27	times

8) Profit Margin Ratio

Profit Margin Ratio
	Choose Numerator	/	Choose Denominator	=	Profit Margin Ratio
	Net Income	/	Net sales	=	Profit Margin Ratio
2017	$31500	/	454600	=	6.93	%

9) Total Assets Turnover

Average total assets= $(209400+253100)/2= $231250

Total Assets Turnover
	Choose Numerator	/	Choose Denominator	=	Total Assets Turnover
	Net sales	/	Average total assets	=	Total Assets Turnover
2017	$454600	/	231250	=	1.97	times

10) Return on Total Assets

Average total assets= $(209400+253100)/2= $231250

Return on Total Assets
	Choose Numerator	/	Choose Denominator	=	Return on Total Assets
	Net income	/	Average total assets	=	Return on Total Assets
2017	$31500	/	231250	=	13.62	%

11) Return on Common Stockholders' Equity

Average Common Stockholders' Equity= $(83000+40300+83000+71800)/2= $139050

Return on Common Stockholders' Equity
	Choose Numerator			/	Choose Denominator	=	Return on Common Stockholders' Equity
	Net income	-	Preferred Dividend	/	Average Common Stockholders' Equity	=	Return on Common Stockholders' Equity
2017	$31500	-	0	/	139050	=	22.65	%