Name Gorle Sreekrishna Chaitanya

Question 1

Write your answer for Part A here.

The Total cash flow from the operations is Sum of Accounts Receivable, Inventories and
Accounts Payable. Answer is -1,977.

Operating Cash Flow is the category that majorly decreased the ‘change in cash’ and
the reason is the significant increase in the accounts receivable over the years.

Write your answer for Part B here.

Cash flow from Operating activities shows a decreasing trend.

Reason: This is due to the increase in Accounts receivable from $9,20,000 to $41,85,000
between 2003 and 2006E.

Cash flow from Investing activities shows an increasing trend over time.

Reason: Significant investment was made during the first two years on land and then
dropped to $0 in subsequent years. But investments in Property, plant and Equipment is
one asset which has grown in the fiscal year 2006 as compared to 2005.

Cash flow from Financing activity shows an increasing trend.

Reason: This is primarily due to Debt issuance which increased by 34% from $14,94,000
to $ 20,06,000 between 2003 and 2006E.
Write your answer for Part C here.

Self-financing of investments:The operating cashflow is insufficient for the company to

self-invest. The operating cash flow is only $226 K, while the cash outflow from
investments is $1398 K

Funding of investments: As shown in the graph, the majority of investments are

supported by both operational and financial activities.

Cash position of the company: As the graph clearly shows, the company's cash position
is negative. This means there is insufficient cash to improve the operations and pay off
debts.

Question 2

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

2002 2003 2004 2005 2006E

Accounts
3,485 4,405 6,821 10,286 14,471
Receivable
Inventories 3,089 2,795 3,201 3,291 3,847
Accounts
2,034 2,973 4,899 6,660 9,424
Payable
Operating
working
capital=inven
tory
+accounts
receivable-ac
counts
payable. 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.

2002 2003 2004 2005 2006E

Sales 24,652 26,797 29,289 35,088 42,597
Operating
working
capital 4,540 4,227 5,122 6,917 8,894
Operating
working
capital/Sales 0.18 0.16 0.17 0.20 0.21

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

2002 2003 2004 2005 2006E

Sales
24,652 26,797 29,289 35,088 42,597
Revenue
Cost of Goods
20,461 21,706 23,841 28,597 35,100
Sold
Sales
Revenue/360 68 74 81 97 118
Cost of Goods
Sold/360 57 60 66 79 98
Inventories 3,089 2,795 3,201 3,291 3,847
Accounts
3,485 4,405 6,821 10,286 14,471
Receivable
Accounts
2,034 2,973 4,899 6,660 9,424
Payable
Days Sales
Outstanding 51 59 84 106 122
 Days
Inventory
Outstanding 54 46 48 41 39
Days Payable
Outstanding 36 49 74 84 97

Write your answer for Part D here.

Though the Ceres company offered long credit periods to encourage the dealers and
made buying decisions easier, there is a negative impact on the Working capital . The
reason is that the Accounts Receivable increased exponentially over the years and which
inturn affects the company’s liquidity.

Question 3

Write your answer for Part A here. Also, paste the economical balance sheet prepared by
you here.
Economical Balance Sheets 2002 - 2006

Operating 2002 Financial 2002

Current Portion of Long-term
Accounts Receivable 3,485 Debt 315
Inventories 3,089 Long-Term Debt 3,258
Plant, Property, &
Equipment (net) 2,257 Shareholders Equity 5,024
Other Assets 645 Cash -705
Land 450 Invested Capital 7,892
Accounts Payable -2,034
Capital Employed 7,892
 Operating 2003 Financial 2003
Current Portion of Long-term
4,405 352
Accounts Receivable Debt
Inventories 2,795 Long-Term Debt 4,400
Plant, Property, &
2,680 6,091
Equipment (net) Shareholders Equity
Other Assets 645 Cash -1,542
Land 1,750 Invested Capital 9,301
Accounts Payable -2,973
Capital Employed 9,301

Operating 2004 Financial 2004

Current Portion of Long-term
6,821 525
Accounts Receivable Debt
Inventories 3,201 Long-Term Debt 5,726
Plant, Property, &
2,958 7,146
Equipment (net) Shareholders Equity
Other Assets 645 Cash -1,818
Land 2,853 Invested Capital 11,578
Accounts Payable -4,899
Capital Employed 11,578
 Operating 2005 Financial 2005
Current Portion of Long-term
10,286 730
Accounts Receivable Debt
Inventories 3,291 Long-Term Debt 7,123
Plant, Property, &
3,617 8,336
Equipment (net) Shareholders Equity
Other Assets 645 Cash -2,158
Land 2,853 Invested Capital 14,032
Accounts Payable -6,660
Capital Employed 14,032

Operating 2006E Financial 2006E

Current Portion of Long-term
14,471 649
Accounts Receivable Debt
Inventories 3,847 Long-Term Debt 8,480
Plant, Property, &
4,347 9,563
Equipment (net) Shareholders Equity
Other Assets 645 Cash -1,955
Land 2,853 Invested Capital 16,738
Accounts Payable -9,424
Capital Employed 16,738
Question 4

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

For Years Ending

December 31 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
Net Income 1,191 1,293 1,279 1,488 1,534
Shareholders Equity 5,024 6,091 7,146 8,336 9,563
Capital Employed 7,892 9,301 11,578 14,032 16,738
Taxes 264 696 689 801 826
EBIT-Tax 1,378 1,642 1,719 2,034 2,192
Average Capital
Employed=
((Opening capital
employed + Closing
capital employed)/2) 7892 8596.632946 10439.854 12805.24314 15385.00723
Variable Margin (as
a % of sales)=
(Sales revenue - cost of
goods sold) / Sales 17 19 18.6 18.5 17.6
Operating Margin=
(Operating income /
Sales) 6.658 8.724 8.221 8.081 7.086
Return on Equity=
(Net profit / Owners'
equity) 23.70 21.23 17.90 17.85 16.04
Return on Average
Capital Employed=
(EBIT-Tax) / {(Opening
capital employed +
Closing capital
employed)/2} 17.46 19.10 16.47 15.89 14.25
Write your answer for Part B here.

ROE is showing a downward trend over the years. The owner’s equity is the
predominant factor, where it increased exponentially(~90%) between the years 2002 and
2006.

Write your answer for Part C here.

ROACE is showing a downward trend. The reason is that the Capital employed has
increased over the years which implies a decline in efficiency inturn decreasing the
returns.

Question 5

Write your answer for Part A here.

Pros:

1. The GetCeres program established a strong market position for Ceres Gardening
Company because of its long credit period provided to dealers, which resulted in
an increase in sales and profits.
2. The GetCeres program enabled the dealers to get fully stocked in advance which
helped Ceres Gardening company in two ways. It allowed them to slightly raise
the price of most of its products. And it reduced the cost of inventory maintenance
which is evident from the decreased DIO numbers over the years.

Cons:

1. The payment terms offered through GetCeres program has exponentially

increased the accounts receivable which is evident from the numbers after 2004.
 2. The key factor in determining the company’s efficiency in generating profits is
Operating Margin and this has been impacted due to the higher discounts offered
through GetCeres program. This resulted in a decline in operating income though
the sales increased.

Overall, when the pros and cons are considered, the GetCeres program is having a
negative impact on the company. Operating cash flows have decreased over the years,
affecting their day-to-day business operations. In terms of risk, the negative cash flows
over the years may result in bankruptcy.