Question

(6) debt-to-equity ratio, (7) times interest earned, (8) profit margin relected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $48,900; total assets, $189,400; common stock, $90,000; and retained earnings, $22,748.) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 Sales $ 448,600 Cost of goods sold 297,250 Gross profit 151,350 Operating expenses 98,600 Interest expense 4,100 Income before taxes 48,650 Income taxes 19,598 Net income $ 29,052 CABOT CORPORATION Balance Sheet December 31, 2017 Assets Liabilities and Equity Cash $ 10,000 Accounts payable $ 17,500 Short-term investments 8,400 Accrued wages payable 3,200 Accounts receivable, net 29,200 Income taxes payable 3,300 Notes receivable (trade)* 4,500 Merchandise inventory 32,150 Long-term note payable, secured by mortgage on plant assets 63,400 Prepaid expenses 2,650 Common stock 90,000 Plant assets, net 153,300 Retained earnings 62,800 Total assets $ 240,200 Total liabilities and equity $ 240,200 * These are short-term notes receivable arising from customer (trade) sales. Required: Compute the followingatio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity. (Do not round intermediate calculations.)

Answer 1

6
Debt-to-Equity Ratio
	Total liabilities	/	Total equity	=	Debt-to-Equity Ratio
2017	$87,400	/	$152,800	=	0.57	to 1
	240200-152800		90000+62800
7
	Times Interest Earned
	Income before tax	+	Interest expense	/	Interest expense	=	Times Interest Earned
2017	$48,650	+	$4,100	/	$4,100	=	$12.9	times
8	Profit Margin Ratio
	Net income	/	Net sales	=	Profit margin ratio
2017	$29,052	/	$448,600	=	0.06476148	%
9	Total Asset Turnover
	Choose Numerator:	/	Choose Denominator:	=	Total Asset Turnover
	Net sales	/	Average total assets	=	Total Asset Turnover
2017	$448,600	/	$214,800	=	2.1	times
10	Return on Total Assets
	Net income	/	Average total assets	=	Return on Total Assets
2017	$29,052	/	$214,800	=	13.5%
11	Return on Common Stockholders' Equity
	Net income	-	Preferred dividends	/	Average common stockholders' equity	=	Return On Common Stockholders' Equity
2017	$29,052	-	0	/	$132,774	=	21.9%	%