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, 2016, were inventory, $46,900; total assets, $249,400; common stock, $88,000; and retained earnings, $28,156.)

1) Compute the days' sales in inventory.

2) Compute the debt-to-equity ratio.

3) Compute the times interest earned.

4) Compute the profit margin ratio.

CABOT CORPORATION
Income Statement
For Year Ended December 31, 2017 Sales $ 450,600 Cost of goods sold 298,250 Gross profit 152,350 Operating expenses 99,600 Interest expense 4,700 Income before taxes 48,050 Income taxes 19,356 Net income $ 28,694

Explanation / Answer

1) Compute the days' sales in inventory.

days' sales in inventory = Average inventory*365/cost of goods sold

= 38525*365/298250

Days's sales in inventory = 47.15 days

2) Compute the debt-to-equity ratio.

Debt to equity ratio = Total debt/Total equity

= 93200/144850

Debt to equity ratio = 0.64

3) Compute the times interest earned.

Times interest earned = EBIT/Interest

= 52750/4700

Times interest earned = 11.22 times

4) Compute the profit margin ratio.

Profit margin ratio = NEt income*100/sales

= 28694*100/450600

Profit margin ratio = 6.37%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.