Professional Documents
Culture Documents
Ceres Gardening Company Submission Template
Ceres Gardening Company Submission Template
Question 1
Ans 1B-
Operating Activities: The operating activities are in decreasing trend as in the year 2003
the cash flow was $2,019 which decreased to $838 in 2004, $250 in 2005 and $226 in
2006(E)
Investing Activities: The investing activities are in fluctuating trend as we can see in
2003 the cash flow was -$2,135 and then it increased for the next two consecutive years
of 2004 and 2005 with the cash flow of -$1,836 and -$1,215 respectively but in the year
2006(E) we noticed that the cash flow decreased to -$1,398
Financing Activities: The financing activities are also in fluctuating trend as the cash
flow in 2003 was $953 which was in increasing trend till the year 2005 with the cash
flow of $1,274 in 2004 and $1,306 in 2005 but in the year 2006(E) we noticed a decrease
in the cash flow in comparison to last year which amounted to $969
Reason for the increase/decrease in each of the three categories of the cash flow
statement.
Operating Activities – The reason that the cash flow is in decreasing trend in the
operating activities is because of the ‘Change in Account Receivable’. The company has
increased their credit sales over the years from 2003 to 2006(E) and it is yet to be paid by
the customer which is the reason why operating cash flow is in decreasing trend.
Investing Activities : The reason that the cash flow is in fluctuating trend in the investing
activities is because of the increase in ‘investment of PP&E’(Property, Plant and
Equipments)
Financing Activities: The reason that the cash flow is in fluctuating trend in the financing
activities is because
Ans 1C-
As we can see that the Cash flow from operations is less than Cash flow from investing,
we can say that the company is financing its assets and investments not only from cash
generated from operations but also from other sources like loans or equity. Hence, the
company is not self financing.
226+(1398)+969 = -$203
The cash position is coming out to be negative which means that the company has
generated less cash than it has invested in the year 2006.
Free Cash Flow: The free cash flow is estimated by CFO-CFI. In our case it will
be $226 - $1,398 = -$1,172
Free cash flow is coming as negative which means the company does not have free cash
flow
Question 2
Ans 2A-
Ans 2C-
Note: Here it is assumed that there are 360 operational days in the year.
The DIO, DSO and DPO for the company from 2002 to 2006(E) is calculated below:
Ans 2D-
When Ceres gardening company launched the GetCeres Program they started providing
120 days payment terms to the both the existing and new dealers. The implication of the
long credit period given to dealers was to increase the sales and to accelerate the growth
in the retail channel.
Question 3
Ans 3-
Write your answer for Part A here. Also, paste the economical balance sheet prepared by
you here.
Ans 4A-
The key profitability ratios for the years 2002 to 2006(E) are calculated below:
The RoE from 2002 to 2006(E) is in decreasing trend as we can interpret from the table that
the RoE for 2002 was 23.70% which decreased to 16.04% in 2006(E).
The reason why the RoE is in decreasing trend is because of the ‘Interest’ Driver of RoE. We
can calculate this by calculating EBT/EBIT which follows the same trend as RoE.
Ans 4C-
The RoACE from 2002 to 2006(E) was in increasing trend at first from 2002 to 2003 with
the percentage of 17.44% and 19.09% respectively but in 2004 the RoACE declined to
16.46% and it started a decreasing trend till the year 2006(E) with the RoACE of 14.24%
The reason why the RoACE is in decreasing trend is because of the ‘Operating Margin’
Driver of RoACE. We can calculate this by calculating Operating Income/Sales which
follows the same trend as RoACE.
Question 5
Increase the Sales: The GetCeres program offered multiple facilities and advantages to
the dealers such as discounted rates of products and extended payment terms. New
dealers were attracted to these offers and hence it increased the sale of the products.
Growth in the Retail Market: GetCeres Program was launched in 2005 with the
objective to grow in the retail channel. The program was designed with multiple
strategies and offered many discounts to reach out to existing dealers as well as new
dealers. The new strategies and tactics used under the GetCeres program enabled the
company to grow in the retail market
Decrease in cash flow: The cash flow of the company was affected drastically in the year
2005 and 2006. The GetCeres program was launched with new payment terms where
they offered 120 days payment terms for all the products purchased under the program,
due to this the accounts receivable in 2005 and 2006 were increased and hence the cash
flow was decreased
Increase in Debt: Under the GetCeres program, the dealers were given the privilege to
pay 120 days from the delivery date which resulted in a decrease in the inflow of cash, to
cover the cost of the company the Long term debts of Ceres gardening company were
gradually increasing.
Yes, I would recommend continuing with the program as we can see in the income
statement that there is an increasing trend in the profits of the company which will be
beneficial for the company in the long run as it can cover its COGS and the repayment of
Debts.