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 total asset turnover.

2) Compute the return on total assets.

3) Compute the return on common stockholders' equity.

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

1) Asset turnover=Net Sales/Average Total Asset

= 450600/243725* = 1.85

*(249400+238050)/2 = 243725

2) Return on total assets= Net Income/Average Total Asset

28694/243725* = 11.77%

*(249400+238050)/2 = 243725

3) Return on common stockholders’ equity= Net Income-Preferred Dividend/Average common stockholders’ equity

= 28694/130503* = 21.99%

*(116156+144850)/2=130503

Opening Common stock = 80000+28156 = 116156

Closing common stock = 80000+56850 = 144850

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