During 2014, El Dorado Inc. has monthly cash expenses of $168,500. On December 31, 2014, the cash balance is

During 2014, El Dorado Inc. has monthly cash expenses of $168,500. On December 31, 2014, the cash balance is $1,415,400.

a. Compute the ratio of cash to monthly cash expenses.
b. Based on (a), what are the implications for El Dorado Inc.?


Answer:
a. 8.4 months ($1,415,400 ÷ $168,500)

b. At the current rate of operations, El Dorado has 8.4 months of cash remaining. El Dorado should either restructure its operations or begin planning on raising additional financing in order to continue in business.




Capstone Turbine Corporation produces and sells turbine generators for such applications as charging electric, hybrid vehicles. Capstone Turbine reported the following financial data for a recent year (in thousands):

Net cash flows from operating activities $(21,899)
Cash and cash equivalents 33,456

a. Determine the monthly cash expenses. Round to one decimal place.
b. Determine the ratio of cash to monthly cash expenses. Round to one decimal place.
c. Based on your analysis, do you believe that Capstone Turbine will remain in business?


Answer:
a. $1,824.9 ($21,899 ÷ 12)

b. 18.3 months ($33,456 ÷ $1,824.9)

c. Capstone Turbine has cash to continue its operations for approximately 18.3 months.