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, $48,900; total assets, $189,400; common stock, $90,000; and retained earnings, $33,748.)

CABOT CORPORATION Income Statement For Current Year Ended December 31
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 tax expense		19,598
Net income	$	29,052

CABOT CORPORATION Balance Sheet December 31
Assets				Liabilities and Equity
Cash	$	10,000		Accounts payable	$	17,500
Short-term investments		8,400		Accrued wages payable		3,200
Accounts receivable, net		33,700		Income taxes payable		3,300
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

Required:
Compute the following: , (1) return on total assets, and (2) return on common stockholders' equity. (Do not round intermediate calculations.)

Answer 1

Ans. 1	Return on investment (ROI) =   Net income / Average assets * 100
	$29,052 / $214,800 * 100
	13.53%
	*Average assets = (Beginning assets + Ending assets) / 2
	($189,400 + $240,200) / 2
	$214,800
Ans. 2	Return on Common stockholder's equity =   Net income / Average Common stockholder's equity * 100
	$29,052 / $138,274 * 100
	21.01%
	*Beginning equity = Beginning common stock + Beginning retained earnings
	$90,000 + $33,748
	$123,748
	*Ending equity = Ending common stock + Ending retained earnings
	$90,000 + $62,800
	$152,800
	* Average Stockholder's equity =   (Beginning equity + Ending equity) / 2
	($123,748 + $152,800) / 2
	$138,274