Question

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $55,900; total assets, $169,400; common stock, $86,000; and retained earnings, $47,625.)

CABOT CORPORATION Income Statement For Year Ended December 31, 2017
Sales	$	452,600
Cost of goods sold		298,450
Gross profit		154,150
Operating expenses		98,800
Interest expense		4,400
Income before taxes		50,950
Income taxes		20,525
Net income	$	30,425

CABOT CORPORATION Balance Sheet December 31, 2017
Assets				Liabilities and Equity
Cash	$	10,000		Accounts payable	$	15,500
Short-term investments		9,200		Accrued wages payable		3,800
Accounts receivable, net		31,600		Income taxes payable		4,500
Notes receivable (trade)*		7,500
Merchandise inventory		40,150		Long-term note payable, secured by mortgage on plant assets		65,400
Prepaid expenses		2,500		Common stock		86,000
Plant assets, net		152,300		Retained earnings		78,050
Total assets	$	253,250		Total liabilities and equity	$	253,250

* These are short-term notes receivable arising from customer (trade) sales.

Required:
Compute the following: (5) days' sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (Do not round intermediate calculations.)

Answer 1

5.

Number of days sales in inventory = Ending inventory / Cost of goods sold * 365

Number of days sales in inventory = $40,150 / $298,450 * 365

Number of days sales in inventory = 49.102865 Days

6.

Debt to Equity Ratio = Total Liabilities / Total Equity

Debt to Equity Ratio = ($15,500+$3,800+$4,500+$65,400) / ($86,000+$78,050)

Debt to Equity Ratio = 0.653737

7.

Times Interest Earned = Income before interest and taxes / Interest Expenses

Times Interest Earned = ($154,150-$98,800) / $4,400

Times Interest Earned = 12.57955 Times

8.

Profit margin = Net Income / Sales * 100

Profit margin = $30,425 / $452,600 * 100

Profit margin = 6.7222%

9.

Total Assets Turnover ratio = Net Sales / Average total Assets

Total Assets Turnover ratio = $452,600 / $253,250

Total Assets Turnover ratio = 1.7871668 Times