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, $46,900; total assets, $249,400; common stock, $82,000; and retained earnings, $38,972.) CABOT CORPORATION Income Statement For Current Year Ended December 31 Sales $ 454,600 Cost of goods sold 296,850 Gross profit 157,750 Operating expenses 99,500 Interest expense 4,700 Income before taxes 53,550 Income tax expense 21,572 Net income $ 31,978
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected
| CABOT CORPORATION Income Statement For Current Year Ended December 31 |
|||
| Sales | $ | 454,600 | |
| Cost of goods sold | 296,850 | ||
| Gross profit | 157,750 | ||
| Operating expenses | 99,500 | ||
| Interest expense | 4,700 | ||
| Income before taxes | 53,550 | ||
| Income tax expense | 21,572 | ||
| Net income | $ | 31,978 | |
| CABOT CORPORATION Balance Sheet December 31 |
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| Assets | Liabilities and Equity | ||||||
| Cash | $ | 14,000 | Accounts payable | $ | 18,500 | ||
| Short-term investments | 8,200 | Accrued wages payable | 3,400 | ||||
| Accounts receivable, net | 30,600 | Income taxes payable | 3,800 | ||||
| Merchandise inventory | 40,150 | Long-term note payable, secured by mortgage on plant assets | 68,400 | ||||
| Prepaid expenses | 2,800 | Common stock | 82,000 | ||||
| Plant assets, net | 151,300 | Retained earnings | 70,950 | ||||
| Total assets | $ | 247,050 | Total liabilities and equity | $ | 247,050 | ||
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
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