Selected year-end financial statements of Cabot Corporation follow. (All sales w

Question

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2014, were inventory, $52,900; total assets, $239,400; common stock, $89,000; and retained earnings, $37,832.) CABOT CORPORATION Income Statement For Year Ended December 31, 2015 Sales Cost of goods sold $454,600 297,550 Gross profit Operating expenses Interest expense 157,050 98,900 4,700 Income before taxes Income taxes 53,450 21,532 Net income $ 31,918 CABOT CORPORATION Balance Sheet December 31, 2015 Assets Cash Short-term investments Accounts receivable, net Notes receivable (trade)* Merchandise inventory Prepaid expenses Plant assets, net Liabilities and Equity Accounts payable Accrued wages payable Income taxes payable Long-term note payable, secured $ 17,500 3,000 3,400 $ 14,000 8,200 29,800 7,500 36,150 3,100 154,300 by mortgage on plant assets Common stock 70,400 89,000 69,750 Retained earnings Total assets $253,050 Total liabilities and equity $253,050 These are short-term notes receivable arising from customer (trade) sales

Explanation / Answer

1) Current Ratio = Current assets / Current liabilities Current assets = 14000+8200+29800+7500+36150+3100 = $98,750 Current liabilities = 17500+3000+3400 = $23,900 Current Ratio = $98,750/$23,900 = 4.13 2) Acid Test ratio = Quick assets / current liabilities Quick assets = Current assets - inventories = 98750-36150 = $62,600 Current liabilities = 17500+3000+3400 = $23,900 Acid Test ratio = $62,600/$23,900 = 2.62 3) Day's sales uncollected = 4) Inventory turnover = Sales/Average inventory Sales = $454,600 Average inventory = (52900+36150)/2 = $44,525 Inventory turnover = $454,600/$44,525 = 10.21 5) day's sales in inventory = 6) Debt-to-Equity raio = Outsiders Debt / Share holders Equity Outsiders debt = 17500+3000+3400+70400 = $94,300 Share holders equity = 89000+69750 = $158,750 Debt-to-Equity raio = $94,350/$158,750 = 0.59 or 59.43% 7) times interest earned = EBIT / Interest EBIT = 53450+4700 = $58,150 Interest = 4700 Times interest earned = $58,150/$4,700 = 12.37 8) Profit margin ratio = Net profit / Sales Net profit = $31,918 Sales = $454,600 Profit margin ratio = $31,918/$454,600 = 7.02% 9) Total asset turnover = Sales / Total assets Sales = $454,600 Total assets = $253,050 Total asset turnover = $454,600/$253,050 = 1.8 10) Return on total asset = Net profit / Average total assets Net profit = $31,918 Average total assets = (253050+239400)/2 = $246,225 Return on total asset = $31,918/$246,225 = 12.96 11) Return on common stock holders equity = Net profit / Common share holders equity Net profit = $31,918 Share holders equity = 89000+69750 = $158,750 Return on common stock holders equity = $31,918/$158,750 = 20.11%

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