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, 2012, were inventory, $49,900; total assets, $229,400, common stock, $120,000; and retained earnings, $53,148.) CABOT CORPORATION Income Statement For Year Ended December 31, 2013 Sales Cost of goods sold $452,600 296,950 Gross profit Operating expenses Interest expense 155,650 99,100 4,400 Income before taxes Income taxes 52,150 21,008 Net income $ 31.142 CABOT CORPORATION Balance Sheet December 31, 2013 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 $ 23,500 2,800 3.400 $ 10,000 9,000 32,400 7.000 34,150 2,950 153,300 by mortgage on plant assets Common stock Retained earnings 68,400 120,000 30,700 Total assets $ 248,800 Total liabilities and equity $248.800 These are short-term notes receivable arising from customer (trade) sales. 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, (B) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity (Use 365 days a year. Do not round intermediate calculations.) Current Ratio Choose Numerator: | 1 Choose Denominator: Current Ratio Current assets Current liabilities - Current Ratio 2013 95500 29.7001 3.2 to 1 Acid-Test Ratio Choose Denominator: t liabilities Choose Acid-Test Ratio Acid-Test Ratio 2.0 to 1 assets 2013 5B,400I 29.700

Explanation / Answer

CURRENT RATIO Choose Numerator / Choose Denominator = Current Ratio Current assets / Current Liabilities = Current ratio 2013 95500 / 29700 = 3.2 to 1 ACID TEST RATIO Choose Numerator / Choose Denominator = Current Ratio Quick assets / Current Liabilities = Current ratio 2013 58400 / 29700 = 2.0 to 1 INVENTORY TURNOVER Choose Numerator / Choose Denominator = Inventory turnover Cost of goods sold / Average inventory = Inventory turnover 2013 296950 / 42025 = 7.1 times DEBT EQUITY RATIO Choose Numerator / Choose Denominator = Debt to equity ratio Total liabilities / Total equity = Debt to equity ratio 2013 98100 / 150700 = 0.7 to 1 TIMES INTEREST EARNED Choose Numerator / Choose Denominator = Times interest earned Operating profit / Interest expense = 2013 56550 / 4400 = 12.9 times PROFIT MARGIN RATIO Choose Numerator / Choose Denominator = Profit margin ratio Net income / Sales = Profit margin ratio 2013 31142 / 452600 = 6.9 % TOTAL ASSET TURNOVER Choose Numerator / Choose Denominator = Total asset turnover Sales / Average total assets = Total asset turnover 2013 452600 / 239100 = 1.9 times RETURN ON TOTAL ASSETS Choose Numerator / Choose Denominator = Return on total assets Net income / Average total assets = Return on total assets 2013 31142 / 239100 = 13.0 % RETURN ON COMMON STOCKHOLDERS' EQUITY Choose Numerator / Choose Denominator = Return on common stockholders' equity Net income / Average common equity = Return on total assets 2013 31142 / 161924 = 19.2 % DAYS SALES UNCOLLECTED Choose Numerator / Choose Denominator x 365 = Days sales uncollected Accounts receivable (including notes receivable-trade) / Net sales x 365 = Days sales uncollected 2013 39400 / 452600 x 365 = 31.8 days DAYS SALES IN INVENTORY Choose Numerator / Choose Denominator x 365 = Days sales in inventory Merchandise inventory / Cost of goods sold x 365 = Days sales in inventory 2013 34100 / 296950 x 365 = 41.9 days

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