Read the Mini-Case on the Castillo Products Company in chapter 7 in the class text and do the following:

1. Calculate the net profit margin ratio for 2018 and 2019.

2. Calculate total sales-to-total assets ratio for 2018 and 2019.

3. Calculate return on equity ratio for 2018 and 2019

Next, describe the financial performance of the firm for the two years based on the results of the ratio analysis.

Lastly, comment on the postings of two class members.

Please note that Module 4 discussion questions are individual assignments

MINICASE Castillo Products Company The Castillo Products Company was started in 2017. The company manufactures components for personal digital assis tant (PDA) products and for other handheld electronic products. A difficult operating year, 2018, was followed by a prof- itable 2019. The founders (Cindy and Rob Castillo) are interested in estimating their cost of financial capital because they are expecting to secure additional external financing to support planned growth. Short-term bank loans are available at an 8 percent interest rate. Cindy and Rob believe that the cost of obtaining long-term debt and equity capital will be somewhat higher. The real interest rate is estimated to be 2 percent, and a long-run inflation premium is estimated at 3 percent. The interest rate on long-term government bonds is 7 percent. A default-risk premium on long-term debt is estimated at 6 percent; plus Castillo Products is expecting to have to pay a liquidity premium of 3 percent due to the illiquidity associated with its long-term debt. The market risk premium on large- firm common stocks over the rate on long-term government bonds is estimated to be 6 percent. Cindy and Rob expect that equity investors in their venture will require an additional investment risk premium estimated at two times the mar- ket risk premium on large-firm common stocks. Following are income statements and balance sheets for the Castillo Products Company for 2018 and 2019. CASTILLO PRODUCTS COMPANY INCOME STATEMENT 2018 2019 Net sales $ 900,000 $1,500,000 Cost of goods sold 540,000 900,000 Gross profit 360,000 600,000 Marketing 90,000 150,000 General and administrative 250,000 250,000 Depreciation 40,000 40,000 EBIT -20,000 160,000Interest 45,000 60.000 Earnings before taxes -65,000 100,000 Income taxes 0 25,000 Net income (loss) $ -65,000 $ 75,000 BALANCE SHEET 2018 2019 Cash $ 50,000 $ 20,000 Accounts receivable 200,000 280,000 Inventories 400,000 500,000 Total current assets 650,000 800,000 Gross fixed assets 450,000 540,000 Accumulated depreciation -100,000 -140,000 Net fixed assets 350,000 400,000 Total assets $1,000,000 $1,200,000 Accounts payable $ 130,000 $ 160,000 Accruals 50,000 70,000 Bank loan 90,000 100,000 Total current liabilities 270,000 330,000 Long-term debt 300,000 400,000 Common stock ($0.05 par value) 150,000 150,000 Additional paid-in-capital 200,000 200,000 Retained earnings 80,000 120,000 Total liabilities and equity $1,000,000 $1,200,000 (continued on next page)