Problem 1: Use the information below from Castillo Product Company to estimate the financial ratios covered in class for the years 2015 and 2016. Instead of using average values from the balance sheet, use ending values so that you get two years of ratios. Also mention briefly for each ratio if results in 2016 (relative to 2015) improved, deteriorated, or you cannot say. $ $ Castillo Product Company BALANCE SHEET Cash Accounts Receivable Inventories Total Current Assets Gross Fixed Assets Accumulated Depreciation Net Fixed Assets Total Assets 2015 2016 50,000 $ 20,000 200,000 $ 280,000 400,000 $ 500,000 650,000 $ 800,000 450,000 $ 540,000 100,000 $ 140,000 350,000 $ 400,000 1,000,000 $1,200,000 $ $ $ $ $ S Accounts Payable Accruals Bank Loan Total current liabilities Long-term debt Common stock ($0.01 par) Additional Paid-in capital Retained earnings Total liabilities and equity $ $ $ $ $ 130,000 50,000 90,000 270,000 300,000 150,000 200,000 80,000 1,000,000 $ 160,000 $ 70,000 $ 100,000 $ 330,000 $ 400,000 $ 150,000 $ 200,000 $ 120,000 $1,200,000 $ $ Castillo Product Company INCONE STATEMENT Net Sales Cost of goods sold Gross profit Marketing General and administrative Depreciation EBIT Interest Earnings before taxes Income taxes Net income (loss) $ $ $ $ $ $ 2015 2016 900,000 $1,500,000 540,000 $ 900,000 360,000 $ 600,000 90,000 $ 150,000 250,000 $ 250,000 40,000 $ 40,000 (20,000) $ 160,000 45,000 $ 60,000 (65,000) $ 100,000 - $ 25,000 (65,000) $ 75,000 $ $ Problem 2 (Cash Conversion Cycle): Castillo Products Company (same company as in the previous example), improved its operations from a net loss in 2015 to a net profit in 2016. While the founders, Cindy and Rob Castillo, are happy about these developments, they are concerned about how long the firm took to complete its cash conversion cycle in 2016. Use the financial statements to make your calculations. Balance sheet items should reflect the averages of the 2015 and 2016 accounts. a) Calculate the inventory-to-sale conversion period for 2016. b) Calculate the sale-to-cash conversion period for 2016. c) Calculate the purchase-to-payment conversion period for 2016. d) Determine the length of Castillo Products' cash conversion cycle for 2016. Problem 3 [Cash Needs]: Short-term financial planning for the PDC Company was explained in chapter 6. Refer to the PDC Company's projected monthly operating schedules in Table 6.2. PDC's monthly sales for the remainder of 2017 are expected to be: September October November December $80,000 $100,000 $130,000 $160,000 a) Prepare PDC's sales schedule, purchases schedule, and wages schedule for each of the last four months of 2017. b) Prepare cash budgets for each of the last four months of 2017 for the PDC Company and describe how the forecast affects the end-of-month cash balances. c) Prepare PDC's projected monthly income statements for the August-December period. d) Prepare PDC's projected monthly balance sheets for the August-December period. e) Prepare PDC's projected monthly statements of cash flows for the August-December period. f) Compare your balance sheet at the end of December with the balance sheet in Table 6.1 and apply the balance sheet method to determine cash flows over the March-December period. Problem 1: Use the information below from Castillo Product Company to estimate the financial ratios covered in class for the years 2015 and 2016. Instead of using average values from the balance sheet, use ending values so that you get two years of ratios. Also mention briefly for each ratio if results in 2016 (relative to 2015) improved, deteriorated, or you cannot say. $ $ Castillo Product Company BALANCE SHEET Cash Accounts Receivable Inventories Total Current Assets Gross Fixed Assets Accumulated Depreciation Net Fixed Assets Total Assets 2015 2016 50,000 $ 20,000 200,000 $ 280,000 400,000 $ 500,000 650,000 $ 800,000 450,000 $ 540,000 100,000 $ 140,000 350,000 $ 400,000 1,000,000 $1,200,000 $ $ $ $ $ S Accounts Payable Accruals Bank Loan Total current liabilities Long-term debt Common stock ($0.01 par) Additional Paid-in capital Retained earnings Total liabilities and equity $ $ $ $ $ 130,000 50,000 90,000 270,000 300,000 150,000 200,000 80,000 1,000,000 $ 160,000 $ 70,000 $ 100,000 $ 330,000 $ 400,000 $ 150,000 $ 200,000 $ 120,000 $1,200,000 $ $ Castillo Product Company INCONE STATEMENT Net Sales Cost of goods sold Gross profit Marketing General and administrative Depreciation EBIT Interest Earnings before taxes Income taxes Net income (loss) $ $ $ $ $ $ 2015 2016 900,000 $1,500,000 540,000 $ 900,000 360,000 $ 600,000 90,000 $ 150,000 250,000 $ 250,000 40,000 $ 40,000 (20,000) $ 160,000 45,000 $ 60,000 (65,000) $ 100,000 - $ 25,000 (65,000) $ 75,000 $ $ Problem 2 (Cash Conversion Cycle): Castillo Products Company (same company as in the previous example), improved its operations from a net loss in 2015 to a net profit in 2016. While the founders, Cindy and Rob Castillo, are happy about these developments, they are concerned about how long the firm took to complete its cash conversion cycle in 2016. Use the financial statements to make your calculations. Balance sheet items should reflect the averages of the 2015 and 2016 accounts. a) Calculate the inventory-to-sale conversion period for 2016. b) Calculate the sale-to-cash conversion period for 2016. c) Calculate the purchase-to-payment conversion period for 2016. d) Determine the length of Castillo Products' cash conversion cycle for 2016. Problem 3 [Cash Needs]: Short-term financial planning for the PDC Company was explained in chapter 6. Refer to the PDC Company's projected monthly operating schedules in Table 6.2. PDC's monthly sales for the remainder of 2017 are expected to be: September October November December $80,000 $100,000 $130,000 $160,000 a) Prepare PDC's sales schedule, purchases schedule, and wages schedule for each of the last four months of 2017. b) Prepare cash budgets for each of the last four months of 2017 for the PDC Company and describe how the forecast affects the end-of-month cash balances. c) Prepare PDC's projected monthly income statements for the August-December period. d) Prepare PDC's projected monthly balance sheets for the August-December period. e) Prepare PDC's projected monthly statements of cash flows for the August-December period. f) Compare your balance sheet at the end of December with the balance sheet in Table 6.1 and apply the balance sheet method to determine cash flows over the March-December period