Problem 17-4A (Algo) Calculating financial statement ratios LO P3 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, $55,900; total assets, $249,400; common stock, $89,000; and retained earnings, $30,650.) Assets Cash Short-term investments Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net $ 10,000 Accounts payable CABOT CORPORATION Balance Sheet December 31 of current year Liabilities and Equity 8,400 Accrued wages payable 33,800 Income taxes payable 34,150 Long-term note payable, secured by mortgage on plant assets 2,550 150,300 Common stock Retained earnings Total assets $ 239,200 Total liabilities and equity CABOT CORPORATION Income Statement $ 17,500 3,800 4,500 64,400 89,000 60,000 $ 239,200 For Current Year Ended December 31 Sales Cost of goods sold Gross profit Operating expenses Interest expense Income before taxes Income tax expense Net income Required: $ 451,600 298,250 153,350 99,400 4,800 49,150 19,800 $ 29,350 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 equity. Note: Do not round intermediate calculations. Req 1 and 2 Req 3 Req 4 Req 5. Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 Compute the current ratio and acid-test ratio. (1) (2) Numerator: Current assets Current Ratio Denominator: Current liabilities Current Ratio Current ratio 0 to 1 Numerator: Quick assets Acid-Test Ratio Denominator: Current liabilities Acid-Test Ratio Acid-Test Ratio 0 to 1 < Req 1 and 2 Req 3 > Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 Compute the days' sales uncollected. (3) Days' Sales Uncollected Numerator: Denominator: Accounts Receivable, net (including current notes receivable from customers) Net sales Days 365 = = Days Sales Uncollected Days sales uncollected 0 days Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 (4) Numerator: Compute the inventory turnover. Inventory Turnover Denominator: Inventory Turnover Cost of goods sold Average inventory = Inventory turnover = 0 times Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 Compute the days' sales in inventory. (5) Days' Sales in Inventory. Numerator: Denominator: Ending merchandise inventory Cost of goods sold < Req 4 x Days 3650 = Days' Sales in Inventory Days' sales in inventory = 0 days Req 6 > Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 Compute the debt-to-equity ratio. (6) Debt-to-Equity Ratio Numerator: Denominator: Total liabilities 1 Total equity Debt-to-Equity Ratio = Debt-to-equity ratio 0 to 1 Req 1 and 2 Req 3 Req 4 Req 5 Req 6. Req 7 Req 8 Req 9 Req 10 Req 11 Compute the times interest earned. (7) Numerator: Income before tax Interest expense Times Interest Earned Denominator: Times Interest Earned Interest expense = = Times interest earned 0 times Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 Compute the profit margin ratio.. (8) Numerator: Net income Profit Margin Ratio Denominator: Net sales Profit margin ratio Profit margin ratio 0 % < Req 7 Req 9 > Req 1 and 21 Req 3 Req 4 Req 5 Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 Compute the total asset turnover. (9) Numerator: Net sales Total Asset Turnover Denominator: Average total assets Total Asset Turnover Total asset turnover = 0 times < Req 8 Req 10 > Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 Compute the return on total assets. (10) Return on Total Assets Numerator: Net income Denominator: Average total assets Return on Total Assets = = Return on total assets 0 % < Req 9 Req 11 > Complete this question by entering your answers in the tabs below. Req 1 and 2 Req 3 Req 4 Req 5 Req 6 Req 7 Req 8 Req 9 Req 10 Req 11 Compute the return on equity. (11) Return on Equity Numerator: Denominator Net income 1 Average total equity < Req 10 Req 11 > Return On Equity Return on equity 0 %