The Castillo Products Company was started in 2017. The company manufactures components for personal digital assistant (PDA) products and for other hand-held electronic products. A difficult operating year, 2018, was followed by a profitable 2019. However, the founders (Cindy and Rob Castillo) are still concerned about the venture’s 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 2018 and 2019.

A. Use year-end data to calculate the current ratio, the quick ratio, and the NWC-to-totalassets ratio for 2018 and 2019 for Castillo Products. What changes occurred?

B. Use Castillo Products’ complete income statement data and the changes in balance sheet items between 2018 and 2019 to determine the firm’s cash build and cash burn for 2019. Did Castillo Products have a net cash build or a net cash burn for 2019?

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.

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INCOME STATEMENT Net sales Cost of goods sold Gross profit CASTILLO PRODUCTS COMPANY Marketing General and administrative Depreciation EBIT Interest Earnings before taxes Income taxes Net income (loss) 2018 $900,000 540,000 360,000 90,000 250,000 40,000 -20,000 45,000 -65,000 0 -$ 65,000 2019 $1,500,000 900,000 600,000 150,000 250,000 40,000 160,000 60,000 100,000 25,000 $ 75,000