Question

Problem 13-4A Calculating financial statement ratios LO P3 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, $50,900; total assets, $169,400; common stock, $84,000; and retained earnings, $31,305.) CABOT CORPORATION Income Statement For Current Year Ended December 31 Sales $ 455,600 Cost of goods sold 297,350 Gross profit 158,250 Operating expenses 98,800 Interest expense 4,700 Income before taxes 54,750 Income tax expense 22,055 Net income $ 32,695 CABOT CORPORATION Balance Sheet December 31 Assets Liabilities and Equity Cash $ 18,000 Accounts payable $ 16,500 Short-term investments 8,800 Accrued wages payable 4,400 Accounts receivable, net 32,000 Income taxes payable 4,800 Merchandise inventory 30,150 Long-term note payable, secured by mortgage on plant assets 72,400 Prepaid expenses 2,850 Common stock 84,000 Plant assets, net 154,300 Retained earnings 64,000 Total assets $ 246,100 Total liabilities and equity $ 246,100 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.)

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Answer 1

current ratio	current assets / current liabilities
current assets:	Amount ($)
cash	18000
short term investments	8800
accounts receivable	32000
merchandise inventory	30150
prepaid expenses	2850
total current assets	91800
current liabilties:
accounts payable	16500
accrued wages payable	4400
income tax payable	4800
total current liabilities	25700
ratio	3.572
acid test ratio	acid assets / current liabilities
acid assets:	Amount ($)
cash	18000
short term investments	8800
accounts receivable	32000
total acid assets	58800
current liabilties:
accounts payable	16500
accrued wages payable	4400
income tax payable	4800
total current liabilities	25700
ratio	2.287937743
days sales uncollected	(accounts receivable / net sales)*365
	Amount ($)
accounts receivable	32000
net sales	455600
ratio (in days)	25.63652327
inventory turnover	cost of goods sold / average inventories
	Amount ($)
cost of goods sold	297350
opening inventories	50900
closing inventories	30150
average inventories	40525
ratio	7.337446021
days sales in inventory	365 days / inventory turnover
inventory turnover	7.337446021
ratio (in days)	49.74482933
debt-to-equity ratio	total liabilities / total equity
	Amount ($)
total liabilities:
accounts payable	16500
accrued wages	4400
income tax payable	4800
note payable	72400
total liabilities	98100
total equity
common stock	84000
retained earnings	64000
total equity	148000
ratio	0.662837838
times interest earned	earnings before interest and tax / interest expense
	Amount ($)
sales	455600
cost of goods sold	-297350
gross profit	158250
operating expenses	-98800
operating income	59450
interest expenses	4700
ratio	12.64893617