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

El Dorado Inc. has monthly cash expenses of $168,500. On December 31, 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 plan on raising additional financing in order to continue in business.