Name Shradha Puro

Question 1

Write your answer for Part A here.

As per cash flow statement (Net income of Ceres Gardening) is $ 1534 K and Operating cash
flow for 2006 is $226 K

There is decline in heavy investment in fixed assets and long-term credits

Hence cash flow from operations and investing activity. This gave us more contribution towards
decreasing “Change in cash” from 2003 till 2006€

Write your answer for Part B here.

What is the trend in cash flow from 'operating activities', 'investing activities' and 'financing
activities' over the years? Identify at least one reason for the increase/decrease in each of the
three categories of the cash flow statement.

Operating Activities: In cash flow statements its observed that change in Acct receivable. There
is decrease trend. This change in cash in and out is due to the change in its working capital.Also,
the accounts payable have been increasing which shows that the operations are funded by the
credit of suppliers.

Investing Activities:

Investment in
-835 -734 -1,215 -1,398
PP&E
Investment in
0 0 0 0
Other Assets
Investment in
-1,300 -1,103 0 0
Land
 Investing Cash
-2,135 -1,836 -1,215 -1,398
Flow

Trend has decreased because the initial investment for the land had already been done and now
the investments were made only on PP &E to increase the production and consequently the
sales and cash inflow.

Financing Activities: It is observed that higher long-term debts from financial institute as
compared to the debts returned. There is increase in dividend payouts and the repayment of old
debts which has created the need for more long-term debts to run the operations of the
company.

Write your answer for Part C here.

a. Self-financing of investments: While reviewing the cashflow statement, it can be

observed that the company has sold some of its assets and liquidated cash inflow to
invest on new assets which will give higher production and perform better operations
and sales.
b. Funding of investments: For funding investment there can be some funds, reserve and
surplus. These things can be further invested.
c. Cash position of the company: The overall cash position of the company is negative
which indicates insufficiency of funds to meet its operational needs.
Free cash flow: Free cash flow (FCF) represents the cash a company generates after
accounting for cash outflows to support operations and maintain its capital assets.
 Unlike earnings or net income, free cash flow is a measure of profitability that excludes
the non-cash expenses of the income statement and includes spending on equipment
and assets as well as changes in working capital from the balance sheet. There is a
negative cash flow observed because the fixed assets and working capital needed to
support rapid growth generally exceed cash flows from existing operations. This is not
bad, provided the new investments will eventually be profitable and they contribute to
free cash flow.

Question 2

Write your answer for Part A here. Paste the excel sheet containing your calculations here.

Year 2002 2003 2004 2005 2006

Operating 4540 4227 5122 6917 8894

working
capital

Write your answer for Part B here. Paste the excel sheet containing your calculations here.

Year 2002 2003 2004 2005 2006

Operating 0.184 0.158 0.175 0.197 0.209

working
capital/sales
ratio

Write your answer for Part C here. Paste the excel sheet containing your calculations here.
 Year 2002 2003 2004 2005 2006

DSO 51.6 60.0 85.0 107.0 124.0

DIO 55.1 47.0 49.0 42.0 40.0

DPO 36.28 50.00 75.00 85.00 98.00

Write your answer for Part D here.

Implications of the long credit period given to dealers by Ceres Gardening limited on its working
capital are:

a)Long credit period has increased the amount blocked in accounts receivables.

b) Long credit period has increased the operating working capital requirement of the company.

Question 3

Write your answer for Part A here. Also, paste the economical balance sheet prepared by you
here.

Economic balance sheet - December 31st 2002

Capital employed Amount Inv Capital Amt

Current Portion of
Accounts Receivable 3,485 Long-term Debt 315
Inventories 3089 Long-Term Debt 3258
Acc Payable -2034 Cash -705
PP&E 2257 Shareholder Equity 5024
Other Asset 645
Land 450
Operating Working
Capital 4540 Net Debt 2826
Capital Employed 7892 Investment Cap 7892

Question 4
 Paste the excel sheet containing the final answers for Part A here.

Year 2002 2003 2004 2005 2006

Variable 17% 19% 18.6% 18.5% 17.6%

Margin

Operating 8.07% 10.26% 9.77% 9.67% 8.66%

Margin

Return on 23.70% 21.23% 17.90% 17.85% 16.04%

Equity

Return on 19.83% 24.05% 19.88% 19.16% 17.30%

Average
Capital

Write your answer for Part B here.

It is observed that ROE is in declining trend.

As per ROE calculation it is depends on net income/ total shareholder equity. Since there has
been increase in both the factors but the denominator increases at higher rate thus resulting in
declining the overall ratio.

If increase in equity is not handled properly it may affect the working capital.

Write your answer for Part C here.

Spike ROACE in 2003 and then a constant decline. The spike is due to high EBIT compared to the
lower capital employed

Question 5
Write your answer for Part A here.

Pros:
a. Aggressive growth - sustainable business performance and growth in cash flows
b. Assured Quality in organic farming industry

Cons:
a. Long Payment Terms
b. Poor distribution – unmanaged stock

The company that may increase their core potential in the market. Moreover, the company has a
great chance to maximize their income potential further in the year 2007 and 2008 and retain
their competitive position in the market for a long span of time.
Opportunity to create synergies, expand market share and become leader in the industry; Ability
to focus on quality, product line expansion and developing the supplier network; Still operating
under Ceres company due to its known quality; Reduced marketing efforts. The program can be
continued if it demonstrates a consistent and favorable performance. Program’s activity Ratio
indicates favorable outcomes since the firm can effectively and efficiently utilize its resources.