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Liquidity and Operating Income Return on Investment: Bill Arts Company

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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
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
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

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Solution Summary

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

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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 ...

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