Problem 17-4A Calculation of financial statement ratios LO P3 Selected year-end
ID: 2446722 • Letter: P
Question
Problem 17-4A 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, 2014, were inventory, $46,900; total assets, $209,400; common stock, $85,000; and retained earnings, $47,212.) CABOT CORPORATION Income Statement For Year Ended December 31, 2015 Sales $ 450,600 Cost of goods sold 296,950 Gross profit 153,650 Operating expenses 99,300 Interest expense 4,300 Income before taxes 50,050 Income taxes 20,162 Net income $ 29,888 CABOT CORPORATION Balance Sheet December 31, 2015 Assets Liabilities and Equity Cash $ 20,000 Accounts payable $ 18,500 Short-term investments 9,600 Accrued wages payable 3,600 Accounts receivable, net 29,400 Income taxes payable 4,300 Notes receivable (trade)* 5,500 Long-term note payable, secured Merchandise inventory 42,150 by mortgage on plant assets 71,400 Prepaid expenses 2,950 Common stock 85,000 Plant assets, net 150,300 Retained earnings 77,100 Total assets $ 259,900 Total liabilities and equity $ 259,900 * 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.)
Explanation / Answer
Current ratio = current assets ÷ current liabilities inventory common stock 85000 3.967803 total asset Acid test ratio = (current asset- invetories)/CL Current assets Current liabilities 2.191288 Cash and cash equivalents 20000 Trade and other payables 22100 Trade receivables 34,900 Short-term borrowings Inventories 46,900 Current portion of long-term borrowings Inventory turnover= COGS/average inventory Other current assets 2,950 Current tax payable 4,300 6.331557 Total current assets 1,04,750 Accrued expenses 57,850 Total current liabilities 26,400 Debt-to-equity ratio = total debt ÷ total shareholder’s equity 2.057647 Interest coverage ratio = earnings before interest and taxes ÷ interest payments net income before taxes 50050 interest 4300 EBIT 54350 Interest coverage ratio 12.63953 (54350/4300) Gross profit margin = gross income ÷ net revenue 0.34099 (153650/450600) Net profit margin = net income ÷ net revenue 0.066329 (29888/450600) Asset turnover = net revenues ÷ average total assets 1.733744 (450600/259900) Return on assets (ROA) = net income ÷ total assets 0.114998 (29888/259900) Return on equity (ROE) = net income ÷ total stockholder’s equity 0.351624 (29888/85000) Days sales in inventory = inventory/cost of sales*365 57.64775 (46900/296950*365) Days sales uncollected = accounts receivable/net sales*365 28.27008 (34900/450600*365)