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, $49,900; total assets, $199,400; common stock, $86,000; and retained earnings, $34,224.)

CABOT CORPORATION Income Statement For Current Year Ended December 31
Sales	$	454,600
Cost of goods sold		297,850
Gross profit		156,750
Operating expenses		98,500
Interest expense		4,200
Income before taxes		54,050
Income tax expense		21,774
Net income	$	32,276

CABOT CORPORATION Balance Sheet December 31
Assets				Liabilities and Equity
Cash	$	12,000		Accounts payable	$	16,500
Short-term investments		8,400		Accrued wages payable		4,600
Accounts receivable, net		30,000		Income taxes payable		4,300
Merchandise inventory		38,150		Long-term note payable, secured by mortgage on plant assets		64,400
Prepaid expenses		2,450		Common stock		86,000
Plant assets, net		151,300		Retained earnings		66,500
Total assets	$	242,300		Total liabilities and equity	$	242,300

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.)

Answer 1

(1)

current assets = cash + short term investment + accounts receivable + merchandise inventory + prepaid expenses

= $12,000 + $8400 + $30,000 + $38,150 + $2450

= $91000

current liabilities = accounts payable + accrued wages payable + income taxes payable

= $16,500 + $4600 + $4300

= $25400

(1)

Current ratio = current assets/current liabilities

= $91000/$25400

= 3.58 times

(2)

Acid test ratio = (cash + short term investment + accounts receivable)/current liabilities

= ($12,000 + $8400 + $30,000)/$25400

= 1.98 times

(3)

days sales uncollected = (average accounts receivable/net credit sales) x 365

= ($30000/$454600) x 365

= 24.09 days

note: beginning accounts receivables are not available in the question posted. Hence only year end accounts receivable have been taken.

(4)

inventory turnover = cost of goods sold/average inventory

= $297850/{($49900 + $38150)/2}

= 6.77 times

(5)

days sales in inventory = 365/inventory turnover

= 365/6.77

= 53.91 days