Q- The Castillo Products Company was started in 2008. The company manufactures components for personal digital assistant (PDA) products and for other handheld 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.

A. Use year-end data to calculate the current ratio, the quick ratio, and the NWCto-total-assets ratio for 2009 and 2010 for Castillo Products. What changes occurred?

B. Use Castillo Products 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 Products have a net cash build or a net cash burn for 2010?

C. 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.

2010 CASTILLO PRODUCTS COMPANY INCOME STATEMENT 2009 Net sales $900,000 Cost of goods sold 540,000 Gross profit 360,000 Marketing 90,000 General and administrative 250,000 Depreciation 40,000 $1,500,000 900,000 600,000 150,000 250,000 40,000 INCOME STATEMENT EBIT Interest Earnings before taxes Income taxes Net income loss 2009 -20,000 45,000 -65,000 9 $65,000 2010 160,000 60,000 100,000 25,000 $ 75,000 2009 2010 Balance Sheet Cash Accounts receivable Inventories Total current assets Gross fixed assets Accumulated depreciation Net fixed assets Total assets $ 50,000 200,000 400,000 650,000 450,000 -100,000 350,000 $1,000,000 $ 20,000 280,000 500,000 800,000 540,000 -140,000 400,000 $1,200,000 Accounts payable Accruals Bank loan Total current liabilities Long-term debt Common stock (0.05 par) Additional paid-in-capital Retained earings 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