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17 Aishwarya Gupta

This document contains information about Ceres Gardening Company from 2002-2006 including: 1) Profits were estimated at $1534 for 2006. Operating cash flow contributed to a decrease in cash from 2003-2006. 2) Various ratios are presented like working capital/sales ratio from 2002-2006, DSO, DPO, DIO. Long credit periods may increase debt. 3) Balance sheet data is shown from 2002-2006 including assets, liabilities, equity. 4) Profitability ratios like gross profit, operating profit margins are presented from 2002-2006 as well as ROE and ROACE. ROACE decreased in 2006 due to increased capital employed. 5

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25 views5 pages

17 Aishwarya Gupta

This document contains information about Ceres Gardening Company from 2002-2006 including: 1) Profits were estimated at $1534 for 2006. Operating cash flow contributed to a decrease in cash from 2003-2006. 2) Various ratios are presented like working capital/sales ratio from 2002-2006, DSO, DPO, DIO. Long credit periods may increase debt. 3) Balance sheet data is shown from 2002-2006 including assets, liabilities, equity. 4) Profitability ratios like gross profit, operating profit margins are presented from 2002-2006 as well as ROE and ROACE. ROACE decreased in 2006 due to increased capital employed. 5

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anshul singhal
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Name Aishwarya Gupta

Question 1

1(A) The profits estimated for the year 2006(E) is 1534.

Operating cash flow has contributed majorly to the decrease in the 'change in cash' by the
company from 2003 to 2006(E).

1(B) Operating Activities:- The data depicts negative trend from year 2002 to
2006(E).Approximately 90% eroded. Because the company is not able to receive its
accounts receivable. As shown the debts has increased approximately 4 times.

Investing Activities:- The data depicts positive trend except for the year 2006. Because
the land acquisition has not taken place for the year 2005 & 2006 and the company is
expanding more on PP&E.

Financing Activities:- The data shows positive trend except for the last year. The
company is consistently taking the funds from the third party, resulting in the positive
cash flow from financing activities. On the other hand the company is discharging the
debt with the increasing trend approximately 2 times the base year (2003).

1(C) Self financing of investment:- 50 % is funded from the shareholders of the


company.

Funding of investment:- 50% is funded from the debters.


Free cash flow:- The cash flow is in decreasing trend. The company is facing liquidity
crunches. As the company is not able to recover its accounts receivable.

Cash Position of the Company:- The overall cash prospective of the company is on
positive side. But entity should analyze its risk with respect to debt equity ratio.

Question 2

2(A)
Column1 2002 2003 2004 2005 2006E
Operating
Working Capital 4930 5416 6416 8345 10199

Operating working capital = Current Assets-Current Liabilities

2(B) The operating working capital/sales ratio of Ceres Gardening Company for 2002 to
2006(E) is shown in the table:-

Column1 2002 2003 2004 2005 2006E


Working capital to sales ratio (in %) 19.99 20.21 21.90 23.78 23.94

2(C) DSO = (Account receivable * 365)/sales revenue

DPO = (Accounts Payable*365)/Cost of goods sold

DIO = (Inventory*365)/Cost of goods sold

DSO = 51.60

DPO = 55.10

DIO = 36.28
2(D) The long credit period to dealers will increase the debt to the ceres gardening
company. As a result the operating working capital of the company would increase.

Question 3

Exhibit 2 - Balance Sheet (in $ thousand, some numbers are rounded)


At December 31 2002 2003 2004 2005 2006E
Assets
Non current Assets
Plant, Property, & Equipment
2,257 2,680 2,958 3,617 4,347
(net)
Other Assets 645 645 645 645 645
Land 450 1,750 2,853 2,853 2,853
Non-Current Assets 3,352 5,075 6,456 7,115 7,844

Current Assets
Cash 705 1,542 1,818 2,158 1,955
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Inventories 3,089 2,795 3,201 3,291 3,847
Current Assets 7,279 8,742 11,839 15,735 20,273

Total Assets 10,631 13,817 18,295 22,850 28,117

Liabilities & Shareholders


Equity

Shareholders Equity 5,024.00 6,090.69 7,145.84 8,336.14 9,563.41

Non current Liability

Long-Term Debt 3,258.00 4,400.46 5,725.82 7,123.39 8,479.98


Current Liability

Accounts Payable 2,034.00 2,973.36 4,898.89 6,659.56 9,424.13

Current Portion of Long-term Debt 315.00 352.04 524.53 730.41 649.44

Current Liabilities 2,349.00 3,325.39 5,423.42 7,389.97 10,073.57

4,698.00 6,650.79 10,846.84 14,779.94 20,147.14

Liabilities Total 12,980 17,142 23,718 30,239 38,191

Capital Employed -2,349 -3,325 -5,423 -7,390 -10,074

Question 4

4(A)
Profitability Ratios 2002 2003 2004 2005 2006E

GP Ratio 17% 19% 19% 19% 18%


Operating profit Margin 6% 7% 7% 7% 6%
Net profit Margin 5% 5% 4% 4% 4%
Return on assets 11% 9% 7% 7% 5%

4(B)

Year 2002 2003 2004 2005 2006(E)

ROE(Return 24% 21% 18% 18% 16%


on equity)

4(C) Due to steady increase in the EBIT from the year 2003 to 2006(E), there has been steady growth in
the ROACE till the year 2005. However due to increase in the Capital employed there is decrease in the
ROACE for the year 2006(E).
Year 2003 2004 2005 2006(E)

ROACE 56.7% 72% 75% 71%

Question 5

Cons:-

1. There is not proper distribution system.


2. The company faces extended payment terms.
3. ROE decreases from 24% to 16% due to less profit margins.
4. Not generating enough money from operating activities.

Pros:-

1. The company is growing too fast.


2. The company has generated enough profit over the period from 2002 to 2006(E).
3. The sales has increased largely.

I would recommend with continuing with the program as the data shows that the
company will manage to keep all its expenses in the same trend through the program.

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