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, $239,400; common stock, $88,000; and retained earnings, $44,140.) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 Sales $449,600 Cost of goods sold 296,850 Gross profit 152,750 Operating expenses 99,500 Interest expense 4,000 Income before taxes 49,250 Income taxes 19,840 Net income $29,410 CABOT CORPORATION Balance Sheet December 31, 2017 Assets Liabilities and Equity Cash $18,000 Accounts payable $17,500 Short-term investments 8,800 Accrued wages payable 4,800 Accounts receivable, net 33,800 Income taxes payable 3,300 Notes receivable (trade)* 5,000 Merchandise inventory 40,150 Long-term note payable, secured by mortgage on plant assets 70,400 Prepaid expenses 2,500 Common stock 88,000 Plant assets, net 149,300 Retained earnings 73,550 Total assets $257,550 Total liabilities and equity $257,550 * These are short-term notes receivable arising from customer (trade) sales. compute the following: (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

Answer 1

Total Liabilities :

Accounts payable	17500
Accrued wages payable	4800
Income tax payable	3300
Long term note payable	70400
Total liabilities	96000
Equity
Common stock	88000
Retained earning	73550
Total equity	161550

6)Debt to equity ratio =Total liabilities /Total equity

                                  = 96000/161550

                                  = .59 times

7)Times interest earned= Income before interest and tax /Interest expense

                       = [49250 Income before tax+ 4000 Interest expense ]/ 4000 Interest expense

                       = 53250/4000

                        = 13.31 times

8)Profit margin ratio =Net income /sales

              = 29410/449600

              = .0654 or 6.54%

9)Total asset turnover = Sales /Average total asset invested

                       = 449600/ 248475

                       = 1.81 times

where Average total asset invested = [Beginning total asset+ Ending total asset]/2

          [ 239400+257550]/2

           496950 /2

            248475

10)

Return on total asset =Net income /average total asset invested

                    = 29410/ 248475

                   = 11.84%

11)Return on common stockholders equity = Net income /Average common stockholders equity

                            = 29410 / 146845

                            = 20.03%

where,

Average common stockholders equity=[132140 beginning equity + 161550]/2

                            = 146845