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.)

1) Compute the return on common stockholders' equity.

2) Compute the days' sales uncollected.

3) Compute the inventory turnover.

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

CALCULATION OF RATIOS FOR 2017:

(1) Overage stockholder's equity = Common stock + Retained earnings for both the years / 2

(2) Accounts receivables turnover = Net credit sales / average accounts receivables

Since the opening balances are not given only this year's accounts receivables and notes receivables have been taken.

(3) Average inventory = Opening Inventory + Closing Inventory / 2

RATIOS FORMULA CALCULATION 1. Return on common stockholder's equity (Net income / Average stockholder's Equity) * 100 (28,694 / 130,503) * 100 =22% 2. Days' sales uncollected 365 / Accounts receivables turnover 365 / 12.27 = 30 days 3. Inventory Turnover Cost of goods sold / Average Inventory 298,250 / 38,525 = 7.5 times

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