Name Digvijay Singh Rajput

Question 1

Write your answer for Part A here.

Out of the net income of 1,534 expected to be earned in 2006, only 226 will translate to the
'cash flow from operations' for 2006. This means only 14.73% of the net income will
translate to the 'cash flow from operations'.

Out of the three categories, 'Operating Cash Flow' has contributed majorly to the decrease
in the 'change in cash' by the company from 2003 to 2006(E).

Comp t0
2003 2004 2005 2006E
2002
Operating Cash 11%
2,019 838 250 226
Flow
Investing Cash 65%
-2135 -1836 -1215 -1398
Flow
Financing Cash 102%
Flow 953.2265 1274.032 1305.884 968.8055

Write your answer for Part B here.

2003 2004 2005 2006E Trends

Operating Cash
Flow 2,019 838 250 226 Decreasing
Investing Cash - - -
-1398
Flow 2135.2 1836.4 1215.4 Decreasing

2003-2004 - Increasing ,
2005- 2006E Decreasing

Financing Cash 953.22 1274.0 1305.8 968.80 Overall Increasing from

Flow 65 32 84 55 953.22- 966.80
Write your answer for Part C here.

Cash position of the company

The cash position of the company is not satisfactory as generated cash is only 226 in cash
flow from operating activities in 2006(E) despite earning a net income of 1,534 in 2006(E).
This has led to the negative change in cash of cash of -203 in 2006(E) Funding of
investments

The company is currently relying upon issuance of debt to fund its investments. The
company has issued debt of 2,006 in 2006(E) in order to fund its investment of PP&E of -
1,398. This might lead to the company being caught in the debt trap. Instead, the company
can use its accumulated profits and reserves to fund its investments.

Free cash flow -

Free cash flow (2006E) = Operating Cash Flow - Capital Expenditures

Free cash flow (2006E) = 226 - 1,398

Free cash flow (2006E) = -1,172

The free cash flow of the company in 2006(E) is negative because of the two factors,
namely increase in accounts receivable and increased investment in PP&E. The accounts
receivable increased by 4,185 which resulted in lower Operating Cash Flow and increased
investment in PP&E further reduced the free cash flow.

Question 2

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

Particulars 2002 2003 2004 2005 2006E

Account Receivable 3,485 4,405 6,821 10,286 14,471

Inventory 3,089 2,795 3,201 3,291 3,847

Accounts payables 2,034 2,973 4,899 6,660 9,424

 Operating Working Capital 4,540 4,227 5,122 6,917 8,894

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

Particulars 2002 2003 2004 2005 2006E

Account Receivable 3,485 4,405 6,821 10,286 14,471

Inventory 3,089 2,795 3,201 3,291 3,847

Accounts payables 2,034 2,973 4,899 6,660 9,424

Operating Working
Capital 4,540 4,227 5,122 6,917 8,894

Sales 24,652 26,797 29,289 35,088 42,597

Operating Working
0.1842 0.1577 0.1749 0.1971 0.2088
Capital/Sales ratio

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

2002 2003 2004 2005 2006E

Sales A 24,652 26,797 29,289 35,088 42,597
Cost of Goods
20,461 21,706 23,841 28,597 35,100
Sold(COGS) B
3,485 10,286 14,471
Accounts Receivable C 4,405 6,821
3,089 3,291 3,847
Inventories D 2,795 3,201
2,034 6,660 9,424
Accounts Payble E 2,973 4,899
Days Inventory
Outstanding(DIO) in D/(B/3
No. of days 60) 54.35 46.36 48.33 41.42 39.45
Days Sales
Outstanding(DSO) in C/(A/3
No. of days 60) 50.89 59.18 83.84 105.53 122.30
Days Payables
Outstanding(DPO) in E/(B/3
No. of days 60) 35.79 49.32 73.97 83.84 96.66

Write your answer for Part D here.

Due to long credit period given to dealers by Ceres Gardening Limited its working
capital requirement has increased to 196% (4540to 8894) when compared from 2002-
2006E
 Days Sales
Outstanding(DS C/(A/36
O) in No. of days 0) 50.89 59.18 83.84 105.53 122.30
Days Payables
Outstanding(DP E/(B/36
O) in No. of days 0) 35.79 49.32 73.97 83.84 96.66

Based on the DSO and DPO computed, the days that the receivable are outstanding is
longer than the days payable are outstanding. In other words, it takes longer to collect
cash than to pay the suppliers. Because of this, it will increase the working capital
requirements and it is possible that there will be a shortage of cash to settle the current
obligations

Question 3

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

Capital Employed= Fixed Assets + Operating Capital

Capital Invested = Shareholders Equity + Net Debt -Cash

Economical balance sheet( in $ thousand, some numbers are rounded)

At December 31st 2002 2003 2004 2005 2006E
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Accounts Payable -2,034 -2,973 -4,899 -6,660 -9,424
Inventories 3,089 2,795 3,201 3,291 3,847
Plant, Property, & Equipment (net) 2,257 2,680 2,958 3,617 4,347
Other Assets 645 645 645 645 645
Land 450 1,750 2,853 2,853 2,853
Capital Employed 7,892 9,301 11,578 14,032 16,738
Current Portion of Long-term Debt 315 352 525 730 649
Long-Term Debt 3,258 4,400 5,726 7,123 8,480
Shareholders Equity 5,024 6,091 7,146 8,336 9,563
Cash -705 -1,542 -1,818 -2,158 -1,955
Capital Invested 7,892 9,301 11,578 14,032 16,738
Question 4

Paste the excel sheet containing the final answers for Part A here

Variable Margin = (Sales revenue - cost of goods sold) / Sales

Operating Margin Operating income / Sales

Return on Equity(ROE) = Net profit / Owners' equity

Return on Average Capital Employed(ROACE) = Earnings after taxes before interest /

{(Opening capital employed + Closing capital employed)/2}

(in $ thousand, some numbers are rounded)

2002 2003 2004 2005 2006E
Sales 24,652 26,797 29,289 35,088 42,597
Cost of Goods Sold 20,461 21,706 23,841 28,597 35,100

Earnings before Interest & Taxes 1,641 2,338 2,408 2,836 3,018
Interest 187 349 440 547 658
Earnings before Taxes 1,454 1,989 1,968 2,289 2,360
Taxes 264 696 689 801 826

Earnings after TAX before Interest 1,378 1,642 1,719 2,034 2,192
Net Income 1,191 1,293 1,279 1,488 1,534
Capital Employed 7,892 9,301 11,578 14,032 16,738
Share holder's Equity 5,024 6,091 7,146 8,336 9,563

Variable Margin As percentage 17.00% 19.00% 18.60% 18.50% 17.60%

Operating Margin as Percentage 6.66% 8.72% 8.22% 8.08% 7.09%

Return on Equity as
23.70% 21.23% 17.90% 17.85% 16.04%
percentage(ROE)
Return on Average Capital
17.46% 19.10% 14.85% 15.89% 13.10%
Employed as percentage(ROACE)

Write your answer for Part B here.

The values of ROE has been continuously showing a dipping trends as below
 ROE trend for ceres is as below 2002 2003 2004 2005 2006E
Return on Equity as
percentage(ROE) 23.70% 21.23% 17.90% 17.85% 16.04%

Three drivers for ROE are Financial Leverage, Empact of Interest , Impact of Taxes

Financial leverage is the use of debt to buy more assets. Leverage is employed to
increase the return on equity. However, here excessive amount of financial leverage
from debt is increases the risk of failure.

Write your answer for Part C here.

The trends of RoACE are as below in the table

2002 2003 2004 2005 2006E

Return on Average Capital
Employed as percentage(RoACE) 17.46% 19.10% 14.85% 15.89% 13.10%

The drivers for RoACE are Margins and Operating Efficiency

The trends of these drivers are as below

RoACE Drivers(Not in percentage )

calculated for reference 2002 2003 2004 2005 2006E
Margins 0.06 0.06 0.06 0.06 0.05

Efficeincy 3.12 3.12 2.81 2.74 2.77

The Operating Efficiency ie Sales/Average capital and Margins EBIAT/Sales are both
showing decreasing trends

Question 5
Write your answer for Part A here.

Pros1

1. GetCeres program supported the company to grow and scaling up by increasing

the sales and profits.
Justification: The below figures showing increasing trends

For Years Ending

December 31 2002 2003 2004 2005 2006E
24,6 35,08
26,797 29,289 42,597
Sales 52 8
4,19
5,091 5,448 6,491 7,497
Gross Profit 1

2. GetCeres program supported the company to reduce the inventory holding period thus

saving the cost on inventory storage. DIO changed from 54 to 39 days over the

years 2002-2006

Justification : Below Figures

200 200 200 200

2002
3 4 5 6E
Days Inventory
Outstanding(DIO) in No. of 46.3 48.3 41.4 39.4
days 54.35 6 3 2 5