Question

Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31 of the prior year were inventory, $46,900; total assets, $219,400; common stock, $82,000; and retained earnings, $40,334.)

CABOT CORPORATION Income Statement For Current Year Ended December 31
Sales	$	451,600
Cost of goods sold		296,950
Gross profit		154,650
Operating expenses		99,200
Interest expense		4,600
Income before taxes		50,850
Income tax expense		20,484
Net income	$	30,366

CABOT CORPORATION Balance Sheet December 31
Assets				Liabilities and Equity
Cash	$	18,000		Accounts payable	$	17,500
Short-term investments		8,000		Accrued wages payable		3,800
Accounts receivable, net		32,400		Income taxes payable		3,400
Merchandise inventory		36,150		Long-term note payable, secured by mortgage on plant assets		68,400
Prepaid expenses		2,950		Common stock		82,000
Plant assets, net		148,300		Retained earnings		70,700
Total assets	$	245,800		Total liabilities and equity	$	245,800

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.)

	(9) Total Asset Turnover Choose Numerator: / Choose Denominator: = Total Asset Turnover / = Total Asset Turnover 2015: / = times

	(10) Return on Total Assets Choose Numerator: / Choose Denominator: = Return on Total Assets / = Return on Total Assets 2015: / = %

	(11) Return on Common Stockholders' Equity Choose Numerator: / Choose Denominator = Return On Common Stockholders' Equity - / = Return On Common Stockholders' Equity 2015: - / = %

Answer 1

Answer to Requirement 1.
Current Assets = Cash + Short Term Investments + Accounts Receivable, Net + Merchandise Inventory + Prepaid Expenses
Current Assets = $18,000 + $8,000 + $32,400 + $36,150 + $2,950
Current Assets = $97,500

Current Liabilities = Accounts Payable + Accrued Wages Payable + Income taxes payable
Current Liabilities = $17,500 + $3,800 + $3,400
Current Liabilities = $24,700

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $97,500 / $24,700
Current Ratio = 3.95 to 1

Answer to Requirement 2.
Quick Assets = Current Assets - Merchandise Inventory - Prepaid Expenses
Quick Assets = $97,500 - $36,150 - $2,950
Quick Assets = $58,400

Acid Test Ratio = Quick Assets / Current Liabilities
Acid Test Ratio = $58,400 / $24,700
Acid Test Ratio = 2.36 to 1

Answer to Requirement 3.
Days’ Sales Uncollected = Current Receivable / Net Sales * 365
Days’ Sales Uncollected = $32,400 / $451,600 * 365
Days’ Sales Uncollected = 26.19 days

Answer to Requirement 4.
Average Inventory = ($36,150 + $46,900) / 2
Average Inventory = $41,525

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $296,950 / $41,525
Inventory Turnover = 7.15 times

Answer to Requirement 5.
Days’ Sales in Inventory = Merchandise Inventory / Cost of Goods Sold * 365
Days’ Sales in Inventory = $36,150 / $296,950 * 365
Days’ Sales in Inventory = 44.43 days

Answer to Requirement 6.
Total Debt = Current Liabilities + Long Term debt
Total Debt = $24,700 + $68,400
Total Debt = $93,100

Total Equity = Common Stock + Retained Earnings
Total Equity = $82,000 + $70,700
Total Equity = $152,700

Debt-to-equity ratio = Total Debt / Total Equity
Debt-to-equity ratio = $93,100 / $152,700
Debt-to-equity ratio = 0.61 to 1