Name Hoang Thuan Nguyen

Question 1

The profits estimated for the year 2006(E) that will translate to the 'cash flow from
operations' for the same year is $6.132 million. Investing cashflow caused the decrease
in the “change in cash”.

The decrease in cash flow from operating activities is due to the decrease in the
company's profitability and an increase in changes in working capital, specifically the
increase in the change in accounts receivable and the decrease in the change in
inventories. This means that the company is not collecting cash from its customers as
quickly as before and is carrying more inventory.
The increase in cash outflow from investing activities in 2006(E) is mainly due to the
company investing more in PP&E to support its growth.
The decrease in net cash inflow from financing activities in 2006(E) is mainly due to an
increase in debt retirement and a decrease in dividends paid out to shareholders.

The Ceres Gardening company does not have enough cash to finance its investments
and will need to obtain external financing. They can try to generate more cash from
operating activities or reduce its investment in property, plant, and equipment to reduce
their debts.
Their investment in property, plant, and equipment is the main reason for its negative
free cash flow in 2006(E). The company needs to invest in PP&E to support its growth,
but it does not have enough cash to finance these investments.
The company's negative free cash flow in 2006(E) indicates that it is not generating
enough cash from its operations to fund its investments. That is a concern as it indicates
that the company may have difficulty in funding its growth in the future.

Question 2

2002 2003 2004 2005 2006E

Operating Working Capital 4540 4227 5122 6917 8894
 2002 2003 2004 2005 2006E
Operating Working 18% 16% 17% 20% 21%
Capital ratio

2002 2003 2004 2005 2006E

DSO 50,9 59,2 83,8 105,5 122,3
DIO 54,3 46,4 48,3 41,4 39,5
DPO 35,8 49,3 74,0 83,8 96,7

When Ceres Gardening Limited gives a long credit period to its dealers, it means that
the company is extending its accounts receivable period. Ceres Gardening Limited is
essentially using their working capital to fund its dealers' purchases. This can lead to a
decrease in the company's working capital, which may result in liquidity issues.

Question 3

At December 31 2002 2003 2004 2005 2006E

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

Plant, Property, & 2.257 2.680 2.958 3.617 4.347

Equipment (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

 Total Assets 10.631 13.817 18.295 22.850 28.117

Liabilities &
Shareholders Equity
Accounts Payable 2.034 2.973 4.899 6.660 9.424

Current Portion of Long- 315 352 525 730 649

term Debt
Current Liabilities 2.349 3.325 5.423 7.390 10.074

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

Total Liabilities & 10.631 13.817 18.295 22.850 28.117

Shareholders Equity

The Capital Employed 8.282 10.491 12.872 15.460 18.043

by the company

Question 4

2002 2003 2004 2005 2006E

Variable Margin 17% 19% 19% 19% 18%
Operating Margin 6% 7% 7% 7% 6%
Return on Equity 24% 21% 18% 18% 16%
Return on Average
Capital Employed 15% 19% 15% 14% 12%

The trend in RoE from 2002 to 2006(E) is a decrease from 24% to 16%. The operating
expensed (marketing, R&D,..) might increase every year and it leads to the decrease of
RoE.

The trend in RoE from 2002 to 2006(E) is a decrease from 15% to 12%. A possible
reason is the company decided to spend more money for investments, but these
investments did not generate profit during this period.

Question 5
Pros:

- Bring a new experience for customer by providing organic products, good

for health.
- Increase brand awareness and engagement through marketing activities,
become the top-of-mind in their industry.

Cons:

- Require more expenses for a loyal customer program (rewards,

advertising, incentive…)
- Need a complex system for managing this program effectively, which may
require more expenses.

They should keep growing this program, organic products is a potential

industry in the future.