Question

Problem 13-4A Calculating financial statement ratios LO P3 Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selo at December 31 of the prior year were inventory, $50,900; total assets, $209,400; common stock, $83,00 $54,315.) CABOT CORPORATION Income Statement For Current Year Ended December 31 Sales $ 452,600 Cost of goods sold 297,550 Gross profit 155,050 Operating expenses 99,500 Interest expense 4,500 Income before taxes 51,050 Income tax expense 20,565 Net income $ 30,485 $ Assets Cash Short-term investments Accounts receivable, net Merchandise inventory CABOT CORPORATION Balance Sheet December 31 Liabilities and Equity $ 20,000 Accounts payable 8,800 Accrued wages payable 33,200 Income taxes payable 38,150 Long-term note payable, secured by mortgage on plant assets 2,450 Common stock 152,300 Retained earnings $ 254,900 Total liabilities and equity 17,500 3,600 3,600 62,400 Prepaid expenses Plant assets, net Total assets 83,000 84,800 $ 254,900

Answer 1

Current Ratio= Current Assets Current Liabilities Cash+Short term investments Accounts receivable+Merchandise inventory+Prepaid Expenses Accounts Payabel+Accrued wages Payable+Income Tax Payable = 20000+8800+33200+38150+2450 17500+3600+3600 4.15 Acid Test Ratio= Cash+Short term investments+Accounts receivable Accounts Payabel+Accrued wages Payable+Income Tax Payable 20000+8800+33200 17500+3600+3600 2.51 Days sales uncollected= *365 Accounts Receivable Net Sales *365 33200 452600 26.8 Days

Inventory Turnover Cost of goods sold Inventories 297550 38150.00 = 7.80 Days sales in inventory= *365 1 Inventory Turnover *365 1 7.80 46.8 Days Debt Equity Ratio Debt Equity = 17500+3600+3600+62400 83000+84800 = 0.52

Time of Interest ratio= Earning before interest and tax Interest Expense 155050-99500 4500 12.34 8 Profit Margin %= Net Income Sales 30485 452600 6.74 % Total Asset turnover= Net Sales Total Assets 452600 254900 1.78 Times

10 Return on total Assets Earning before interest and tax Total Assets 155050-99500 254900 21.79 % 11 Return Equity Net Income Shareholders Equity 30485 83000+84800 18.17 %