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. $47,900: total assets, $259,400, common stock, $89,000, and retained earnings. $34,451) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 Sales $ 454,600 Cost of goods sold 297,950 Gross profit 156,650 Operating expenses 98,700 Interest expense 4,700 Income before taxes 53,250 Income taxes 21,451 llet income $ 31,799 Assets Cash Short-term investments Accounts receivable, net Notes receivable (trade) Merchandise Inventory 17.500 4,600 3,300 CABOT CORPORATION Balance Sheet December 31, 2017 Liabilities and Equity $ 12,00€ Accounts payable 8,400 Accrued wages payable 33,200 Income taxes payable 4,500 48,150 Long-term note payable, secured by mortgage on plant assets 2,509 Common stock 147.300 Retained earnings $ 248,658 Total liabilities and equity 67,40 Prepaid expenses Plant assets, net Total assets 89,00 66.250 $ 248,050 *These are short-term notes receivable arising from customer (trade) sales. 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) times interest eamed, (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.) Complete this question by entering your answers in the tabs below. Reg4 Reg 5 Reg 7 Rigs Rego Reg 1 and 2 Reg 3 Reg 9 Reg 10 Reg 11 Compute the profit margin ratio. (8) Profit Margin Ratio Choose Denominator: Choose Numerator: Profit margin ratio Profit margin ratio % 2017: 1 < Req7 Req9 >

Answer 1

Ratio	Formula	Choose Numerator	Choose denominator	Profit Margin ratio	Unit
Profit Margin ratio	= Net profit / Sales*100	$                    31,799	$                  4,54,600	6.99	%
Ratio	Formula	Choose Numerator	Choose denominator	Total Asset turnover ratio	Unit
Total Asset turnover ratio	= Net Sales / Average Total Assets	$                 4,54,600	=(2,59,400+2,48,050)/2= $ 2,53,725	1.79	times
Ratio	Formula	Choose Numerator	Choose denominator	Return on total Assets	Unit
Return on total Assets	= Net income / Average Total Assets	$                    31,799	=(2,59,400+2,48,050)/2= $ 2,53,725	59.19	%
Ratio	Formula	Choose Numerator	Choose denominator	Retun on Common shareholders's equity	Unit
Return on Common shareholders's equity	=Net Income / Shareholders equity	$                    31,799	=(89,000+66,250)= $ 1,55,250	20.48	%

Note -

1.We can also consider Average Shareholders equity in Return on Common shareholders's equity formula,

where Average Shareholders equity (opening + closing capital average) = [1,55,250+(89,000+34,451)]/2 = (1,55,250+1,23,451) / 2 = 2,78,701/2 =$ 1,39,350.50

2. Capital includes common stock and retained earnings.

3. Return on Common shareholders's equity = Net Income / Average Shareholders equity = $ 31,799 / $ 1,39,350.50 = 22.82%