he Castillo Products Company was started in 2008. The company manufactures components for personal decision assistant (PDA) products and for other hand-held electronic products. A difficult operating year 2009 was followed by a profitable 2010. However, the founders (Cindy and Rob Castillo) are still concerned about the ventures liquidity position and the amount of cash being used to operate the firm. Following are income statements and balance sheets for the Castillo Products Company for 2009 and 2010.

CASTILLO PRODUCTS COMPANY

Income Statement

Net Sales Cost of Goods Sold Gross Profit

2009

$900,000 540,000 360,000

2010

$1,500,000 900,000 600,000

Marketing General & Administrative Depreciation

150,000 250,000 40,000 160,000 60,000 100,000 25,000

$75,000

2010

$20,000 280,000 500,000 800,000 540,000

-140,000 400,000 $1,200,000

$160,000 70,000 100,000 330,000 400,000 150,000 200,000 120,000

$1,200,000

90,000 250,000 40,000 -20,000 Interest 45,000

EBIT

Earnings Before Taxes Income Taxes

Net Income (Loss)

Balance Sheet

Cash Accounts Receivables Inventories

Total Current Assets Gross Fixed Assets Accumulated Depreciation Net Fixed Assets

Total Assets

Accounts Payable Accruals 50,000

-65,000 0 -$65,000

2009

$50,000 200,000 400,000 650,000 450,000

-100,000 350,000 $1,000,000

Bank Loan Total Current Liabilities

Long-Term Debt Common Stock ($.05 par) Additional Paid-in-Capital Retained Earnings

Total Liab. & Equity

90,000 270,000 300,000 150,000 200,000

80,000 $1,000,000

$130,000

1. Use year-end data to calculate the current ratio, the quick ratio, and the net working capital (NWC) to total assets ratio for 2009 and 2010 for the Castillo Company. What changes occurred?

2. Use Castillos complete income statement data and the changes in balance sheet items between 2009 and 2010 to determine the firms cash build and cash burn for 2010. Did Castillo have a net cash build or net cash burn for 2010?

3. Convert the annual cash build and cash burn amounts calculated in Part B to monthly cash build and cash burn rates. Also indicate the amount of the net monthly cash build or cash burn rate.