Selected year-end financial statements of Cabot Corporation follow. (All sales w

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, $46,900; total assets, $249,400; common stock, $88,000; and retained earnings, $28,156.)

* 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, (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.)

CABOT CORPORATION
Income Statement
For Year Ended December 31, 2017 Sales $ 450,600 Cost of goods sold 298,250 Gross profit 152,350 Operating expenses 99,600 Interest expense 4,700 Income before taxes 48,050 Income taxes 19,356 Net income $ 28,694

Explanation / Answer

Accounts receivables turnover = Net sales / (Accounts receivables + Notes receivables)

Net operating income = Net income before income taxes

Stockholder's equity = Common stock + Retained earnings

RATIOS FORMULA ANSWER 1. Current ratio Current assets / Current Liabilities 85,750 / 23,800 = 3.6:1 2. Acid test ratio Quick Assets / Current liabilities 53,100 / 23,800 = 2.23:1 3. Days' sales uncollected 365 / Accounts receivables turnover ratio 365 / 12.27 = 29.74 days 4. Inventory Turnover Cost of goods sold / Average Inventory 298,250 / 38,525 = 7.74 times 5. Days'sales in inventory 365 / Inventory Turnover ratio 365 / 7.74 = 47.15 days 6. Debt to equity ratio Long term debt / Stockholder's Equity 69,400 / 144,850 = 0.47:1 7. Times interest earned Income before interest expense / Interest expense 52,750 / 4,700 = 11.22 times 8. Profit margin ratio (Net Income / Net sales ) * 100 (28,694 / 450,600) * 100 = 6.36% 9. Total asset turnover Net sales / Average total assets 450,600 / 243,725 = 1.84 times 10. Return on total assets (Net operating income / Average total assets) * 100 (52,750 / 243,725) * 100 = 21.64% 11. Return on common stockholder's equity (Net income / Average stockholder's equity) * 100 (28,694 / 130,503) * 100 = 21.98%

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