Problem 13-4A Calculation of financial statement ratios LO P3 Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $50,900; total assets, $219,400; common stock, $82,000; and retained earnings, $36,846.) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 Sales $ 454,600 Cost of goods sold 296,850 Gross profit 157,750 Operating expenses 98,600 Interest expense 4,300 Income before taxes 54,850 Income taxes 22,096 Net income $ 32,754 $ Assets Cash Short-term investments Accounts receivable, net Notes receivable (trade) * Merchandise inventory CABOT CORPORATION Balance Sheet December 31, 2017 Liabilities and Equity $ 16,000 Accounts payable 9,200 Accrued wages payable 30,200 Income taxes payable 4,000 32,150 Long-term note payable, secured by mortgage on plant assets 3,050 Common stock 150, 300 Retained earnings $ 244,900 Total liabilities and equity 19,500 3,000 4,400 66,400 Prepaid expenses Plant assets, net Total assets 82,000 69,600 $ 244,900 * 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, (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.) (1) Current Ratio Choose Denominator: Choose Numerator: 1 Current Ratio Current ratio 0 to 1 2017: = (2) Acid-Test Ratio Choose Denominator: Choose Numerator: Acid-Test Ratio Acid-Test Ratio 0 to 1 2017: (3) Days' Sales Uncollected Choose Denominator: ~ Days Choose Numerator: = Days Sales Uncollected Days sales uncollected 2017: 0 days (4) Inventory Turnover 1 Choose Denominator: Choose Numerator: = Inventory Turnover Inventory turnover 0 times 2017: 11 = (5) Days' Sales in Inventory 1 Choose Denominator: ~ Days Choose Numerator: - = Days' Sales in Inventory Days' sales in inventory 0 days 2017: (6) Debt-to-Equity Ratio Choose Denominator: Choose Numerator: I - Debt-to-Equity Ratio Debt-to-equity ratio 0 to 1 2017: Times Interest Earned Choose Numerator: Income before tax + Interest expense 2017: $ 54,850 + $ 4,300 Times Interest Earned Choose Denominator: 1 Interest expense $ 4,300 12 4.30 = Times interest earned Times interest earned 13.8 times = (8) Choose Numerator: Net income 2017: $ 32,754 1 1 1 Profit Margin Ratio Choose Denominator: Net sales $ 454,600 = = Profit margin ratio Profit margin ratio 7.2 % (10) Choose Numerator: Return on Total Assets 1 Choose Denominator: - = Return on Total Assets Return on total assets 0 % 2017: (11) Choose Numerator: Return on Common Stockholders' Equity Choose Denominator = Return On Common Stockholders' Equity = Return on common stockholders' equity 2017
