Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2014, were inventory, $53,900; total assets, $239,400; common stock, $90,000; and retained earnings, $43,626.)
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.
- Current Ratio
= Current Assets/Current Liabilities
= (Cash + Short Term Investments + Accounts receivable + Notes receivable + Merchandise Inventory + Prepaid Expenses) / (Accounts Payable + Accrued Wages Payable + Income Tax Payable)
=107800 / 25,500
= 4.232. Acid Test Ratio
= Quick Assets / Current Liabilities
Quick Assets = Current Assets excluding Prepaid Expenses and Inventory=63,100 / 25,500
= 2.473. Days’ Sales Uncollected (Not sure about this one but worked out as per the source)
= 365 / Receivables Turnover
where Receivables Turnover = Net Credit Sales / Average Net Receivables
hence Receivables Turnover
= 449,600 / 29,400
= 15.29
= 365 / 15.29
= 23.87 days
or 24 days
4. Inventory Turnover Ratio
= Cost of Goods Sold / Average Inventory
where Average Inventory = (Opening Inventory + Closing Inventory) / 2
= (43,900 +42,150) / 2
= 48025
= 298350 / 48025
= 6.21 times
5. Days’ Sales in Inventory
= No. of days in a year / Inventory Turnover Ratio
= 365 / 6.21
= 58.75 days
or 59 days
6. Debt to Equity Ratio
= Total Debt (Long Term + Short Term) / Equity (Stock + Retained Earnings)
= Long Term Notes Payable / Common Stock + Retained Earnings
= 68,400 / (72200 + 90,000)
= 68,400 / 162200
= 0.42 times
7. Times Interest Earned
= Earnings before Interest and Taxes / Interest Charges
= (151,250 – 98,700) / 4,700
= 11.18 times
8. Profit Margin Ratio
A) Gross Profit Margin Ratio
= Gross Profit / Sales
= 151,250 / 449,600
= 0.336
B) Net Profit Margin Ratio
= Net Profit / Sales
= 28574 / 449,600
= 0.0635
9. Total Asset Turnover
= Net Sales / Total Assets
= 449,600 / 256100
= 1.755 times
10. Return on Total Assets
= Net Profit after Taxes / Total Assets
= 28574 / 256100
= 0.1115
11. Return on Common Shareholders equity
= Net Profit after interest, tax and preference dividend / Common Stock + Retained Earnings
= 28574 / (90,000 + 72200)
= 0.1761
i.e. 17.61%
