Question

Problem 17-4A Calculation of financial statement ratios LOP3 22 httpztowheck Selected year end financial statements or Cabot Corporation follow. (All sales were on credit selected balance sheet amounts at December 31, 2012, were inventory, $48.900; total assets. S189,400, common stock, 590,000, and retained earnings, $22,748) CABOT CORPORATION Income Statement For Year Ended December 31, 2013 Sales 448,600 Cost of 297.250 goods sold Cross 151,350 profit 98,600 Operating expenses Interest expense 4.100 48,650 Income before taxes Income taxes 19.598 Net income 29,052 CABOT CORPORATION Balance Sheet December 31, 2013 Liabilities and Equity Assets Cash 10.000 Accounts 17,500 Short-term investments 3,200 Accounts receivable, net 3,300 Notes receivable (trade) payable Accrued 8.400 wages payable Income 29,200 taxes payable Long-term note payable, 4,500 secured by 32.150 mortgage on plant assets 2,650 Common stock Retained 153,300 earnings Merchandise inventory 63,400 Prepaid expenses 90,000 Plant assets, net 62,800 Total assets Total 240,200 liabilities and equity $ 240,200 * These are short-term notes receivable arising from customer (trade) sales.

Answer 1

	Name of the Ratio	Formula	Ratio
1	Current Ratio	Current Assets/Current Liabilities	86900/24000	3.62
	Current Assets= 10000+8400+29200+4500+32150+2650=86900
	Current Liability=17500+3200+3300= 24000
2	Acid Test Ratio	Quick Assets/Current Liabilities	52100/24000	2.17
	Quick Assets= Current Assets - (Inventor+Prepaid Expenses) 86900 - (32150+2650)= 52100
3	Days' Sales Uncollected Ratio	365 days/Accounts Receivables Turnover Ratio	365 /13.3115727	27.42	days
	Accounts Receivable Turnover Ratio	Net Credit Sales/Average Receivables	448600/33700	13.31	times
	average Receivables= (Opening Receivables+ Closing Receivables)/2 =
	Note: In the absence of opening trade receivables closing will be taken as Average i.e 29200+4500= 33700
4	Inventory Turnover Ratio	Cost of Goods Sold/Average Inventory	297250/ 40525	7.33	times
	Average Inventory = (Openign Inventory+ Closing Inventory)/2 = (48900+32150)/2 = 40525
5	Days Sales to Inventory Ratio	365 days/ Inventory Turnover Ratio	365/7.334978408	49.76	days
6	Debt to Equity Ratio	total Debts/ Share Holders Funds	87400/152800	0.572	times
	Total Debts = Current Liabilities+ Long term Liabilities = 24000+63400= 87400
	Share Holders Fund = Common Stock+ Retained Earning= 90000+62800=152800
7	Times Interest Earned Ratio	Earnings Before Interest and Tax/Interest Expenses	52750/4100	12.87	times
	EBIT= 151350 - 98600 = 52750
8	Profit Margin Ratio	(Net Income/Net Sales)*100	(29052/448600)*100	6.476	%
9	Total Assets Turnover Ratio	Net Sales/Average Total Assets	448600/214800	2.09	times
	Average Total Assets= (Opening Assets+ Closing Assets)/2 =(189400+240200)/2= 214800
10	Return on Total Assets Ratio	(EBIT/Average Total Assets)	(151350/214800)*100	70.46	%
11	Return on Common Stock Holders Equity	(Net Income/ Average Share Holders Funds)*100	(29052/ 132774)*100	21.88	%
	Average Share Holders Funds= (Opening Share Holders Funds+ Closing Share Holders Fund)/2= (90000+22748+90000+62800)/2 = 132774
	Note: Above ratios calculated based on best possible ratios used in general practice