Name Kundur Indra Karan Reddy

Question 1

The 3 categories in the cash flow statement contributed for the decrease in cash change
are operating, investing and financial activities.

There is a decrease in Operating cash flow from 2003-2006. There is an increase of

Investing Cash flow from 2003-2006 and there is an increase of financial cash flow from
2003-2005 but it got decreased again in 2006. The reason of decrease in operating cash
flow is due to change in Accounts receivable and Inventories. The reason of increase in
Investing Cash flow is due to no investment in other assets. The reason of increase of
financial cash flow is Debt issuance.

Based on cash flow profile analysis, self-financing of investments can be considered as

Cash flow of operating activities is greater than combination of Investing and financial
activities. (CF0>CFI+CFF). Based on graph provided the assumed values of CFO=250,
CFI=-1200, CFF=-200. Hence 250>-1400.

Cash position of the company can be considered when Operating cash flow-Investing
Cash flow has to be positive. When checked with above graph values 250-(-1200) = 1400
is a positive value.

The funding of investment is supposed to be CFO+CFF = 250+(-200) =50 is a positive

number can be considered.

Question 2
 Operating working capital

2002 2003 2004 2005 2006

4540 4227 5122 6917 8894

Sales ratio

2002 2003 2004 2005 2006

0.184162152 0.15774196 0.174877686 0.197131388 0.208793245

2002 2003 2004 2005 2006

DIO 55.16071 47.053137 49.01394 42.02563 40.0019
DSO 51.62963 60.013277 84.99359 107.0359 124.0048
DPO 36.32143 50.056529 75.02134 85.05188 98.00464

The credit period given to dealers through GetCeres program is 120 days for both new
dealers and existing dealers.

Question 3

Assets

Particula
rs 2002 2003 2004 2005 2006
Plant,
Property,
& 2,257 2,680 2,958 3,617 4,347
Equipme
nt (net)
Account
s
3,485 4,405 6,821 10,286 14,471
Receivab
le
Inventori 3,089 2,795 3,201 3,291 3,847
es
Cash 705 1,542 1,818 2,158 1,955
Other
645 645 645 645 645
Assets
Land 450 1,750 2,853 2,853 2,853
Capital
employe
d 10,631 13,817 18,295 22,850 28,117

Liabilities and Equity

2002 2003 2004 2005 2006

Accoun 2,034 2,973 4,899 6,660 9,424

ts
Payable
Long-
Term 3,258 4,400 5,726 7,123 8,480

Debt
 owner's
5,024 6,091 7,146 8,336 9,563
equity

Question 4

Key profitability values

2002 2003 2004 2005 2006
Operating
margin 6.65% 8.72% 8.22%% 8.08% 7.08%
RoE 23.7062102 21.2280414 17.8981248 17.8502879 16.0409913
RoACE 13.20% 15.44% 16.16% 19.14% 20.61%
Variable
Margin 17.00 19.00 18.60 18.5 17.6

There is a decrease in RoE from 2002-2006. It can be increased by increasing the net
income and decreasing owner’s equity. In the above, the decrease of RoE is due to
increase in taxes and interest.

There is an increase in RoACE from 2002-2006.

Question 5

The two pros of GetCeres program which got implemented in 2005 are discounts
provided for new dealers and payment terms of 120 days for both new and exisiting
dealers. The 2 cons of the program are Dealers can only have same discounts even after
purchasing greater stock and dealer must accept no fewer than two replenishment
deliveries during 2006. Based on the values considering the Profit, economical balance
sheet and cash flow details we can recommend continuing with the GetCeres program as
there is increase in value from 2005-2006.