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Liquidity and Operating Income Return on Investment: Bill Arts Company

Below are financial statements for Bills Art Company.
Question 1: How Liquid is the firm? Select one of two recongized approaches to answering this question.
Question 2: Calculate the operting income return on investment (OIROI). Explain your answer.
Question 3: Are the Owners (stockholders) receiving an adequate return on their investment?

Bill Arts Company
Income Statement
Sales $4,195,197
Cost of goods sold 2,673,129
Gross profit $1,522,068
Selling, G&A expenses $ 465,831
Depreciation 160,119
Total operating expenses 625,950
Operating profit $ 896,118
Interest expense 17,849
Earning before taxes $ 878,269
Income taxes 298,052
Net Income $ 580,217

Balance Sheet
Assets
Cash $795,728
Accounts receivable $964,465
Other current assets $306,394
Total current assets $2,066,586
Gross plant property $2,006,256
Depreciation $ 973,660
Net plant and property $1,032,596
Other assets $ 762,035
Total Assets $3,861,217
Liabilities
Liabilities
Account s payable $ 382,579
Accrued expenses $ 226,977
Income taxes payable $ 380,496
Total current liabilities $ 990,052
Long term debt $ 638,250
Total Liabilities $1,628,302
Common Equity
Common stock (par value) $ 3,254
Paid in capital $ 386,284
Retained earnings $2,325,737
Less treasury stock $ (482,360)
Total common equity $2,232,915
Total liability and equity $3,861,217

Solution Preview

1. Liquidity of the firm
current ratio=current assets/current liabilities 2.1
current assets 2066586
current liabilities 990052

cash ratio= cash /current liabilities 0.803723441
cash 795728

The liquidity position of the company is sound as the current ...

Solution Summary

The expert examines liquidity and operating income returns on investments for Bill Arts Company.

$2.19