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: (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity. (Do not round intermediate calculations.)

Answer 1

Average total assets = (253,250+169,400) / 2 = 211,325

9.

Total asset turnover = Sales / Average total assets

= 452,600 / 211,325

= 2.14 times

10.

Return on total assets = Net income / Average total assets

= 30,425 / 211,325

= 14.40%

11.

Equity = Common stock + Retained earnings  

Average equity = [(86,000+47,625) + (86,000+78,050)] / 2

= 148,837.5

Return on common stockholders equity = Net income / Average equity

= 30,425 / 148,837.5

= 20.44%