Calculation of financial statement ratios

Calculation of financial statement ratios
Selected year-end financial statements of Cabot Corporation follow. (Note: All sales are on credit; selected balance sheet amounts at December 31, 2007, were inventory, \$49,900; total assets, \$169,400; common stock, \$110,000; and retained earnings, \$52,348.)

CABOT CORPORATION
Income Statement
For Year Ended December 31, 2008
Sales \$ 455,600
Cost of goods sold 298,150
Gross profit 157,450
Operating expenses 98,500
Interest expense 4,100
Income before taxes 54,850
Income taxes 22,096
Net income \$ 32,754
________________________________________

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CABOT CORPORATION
Balance Sheet
December 31, 2008
Assets Liabilities and Equity
Cash \$ 16,000 Accounts payable \$ 24,500
Short-term investments 8,200 Accrued wages payable 3,400
Accounts receivable, net 33,000 Income taxes payable 3,000
Notes receivable (trade)* 6,000 Long-term note payable, secured by mortgage on plant assets 66,400
Merchandise inventory 36,150 Common stock 125,000
Prepaid expenses 2,450 Retained earnings 26,800
Plant assets, net 147,300 Total liabilities and equity \$ 249,100
Total assets \$ 249,100
________________________________________
* These are short-term notes receivable arising from customer (trade) sales.

Required:
Compute the following (Do not round interim calculations. Round your answer to 1 decimal place. Omit the “%” sign, which is provided for you):

1. Current ratio to

2. Acid-test ratio to

3. Days’ sales uncollected days

4. Inventory turnover times

5. Days’ sales in inventory days

6. Debt-to-equity ratio to

7. Times interest earned times

8. Profit margin ratio %

9. Total asset turnover times

10. Return on total assets %

11. Return on common stockholders’ equity %

Solution Preview
Current Ratio = = = 3.29
Acid test or Quick ratio = (current assets – inventories) / current liabilities = (101,800 – 36,150) / 30,900 = 2.12
Days’ sales uncollected = 365 / Receivable Turnover
Because we need to know the receivable turnover in …

Solution Summary
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