Group Members:

Shaarang Begani – 1155155892

XIAOQIN HUANG - 1155154182
Wei Yang – 1155152246
Zhenyu Zhang – 1155155887
Yutaro Goto - 1155138618

1. How does the GetCeresTM program encourage dealers to purchase

more products from Ceres?
The GetCeresTM program that has been done by Ceres has two main
strategies of "Discounting" and "Deferring option for payment" as below to
promote the sales to dealers and to expand Ceres' market share.  
- Discounting   
New customer development by offering a 15% discount to the product for a
minimum stock order and, also the same amount of discount being offered to
the existing customers who were ready to purchase the product more than last
year.   
- Payment timing term (Deferring option)  
Both new and existing dealers received 120-day payment terms that is a
longer period comparing with industry practice that extends seasonal credit
terms of 75 or 90 days to dealers.  

2. Evaluate the performance of the company for 2003 through 2006E using
the information in the Income Statement and Balance Sheet.
Specifically, calculate the sales growth, gross margin, ROA and ROE for
2003 through 2006E. What do these metrics suggest about the
performance of the company? How does the sales growth compare with
the industry sales growth?
The sales growth rate is showing an increase during consecutive 4 years from
2003 and Ceres's sales growth was strong compared to sales growth in the
industry. However, ROA value which means productivity and profitability of
the company’s operation has been decreasing gradually according to the
table1. The declining of ROA means Ceres did not use their Asset efficiently
in their operation. The ROE ratio is also declining during these years. It
means the efficiency of creating value for investors is also decreasing. We
believe that the overall performance of the company is not bad but it is
advised that the company should improve the turnover rate of their current
assets.  

Case 2 - Q2 Group
5.xlsx
 3. Construct the Cash Flow Statements for 2003 through 2006E using the
indirect method. What is the overall change in cash each year? What is
the cash flow from operations for each year? What do these amounts
suggest about the performance of the company?

Case 2 - Q3 Group
5.xlsx

The overall change in cash from 2003 to 2006E is 836.92, 275.82,340.16 and
-203.03 thousand USD, respectively. The cash from from operations from
2003 to 2006E is 2055.91, 1010.73, 455.54, 145.21 thousand USD,
respectively. According this cash flow statement, we see a downward trend in
cash generating. Although 2005 has a slight rebound, we see a negative cash
flow in 2006. The cash generated from operations is decreasing very fast. It is
a dangerous signal which shows the company’s current business model is not
sustainable and may run out of cash and go to bankruptcy.

4. Forecast Ceres’ sales for 2007 and 2008. For 2007 and beyond, assume
dealers’ sales of Ceres products will grow at 15% per year (note: dealers’ sales
of Ceres products and Ceres’ sales to dealers are not the same thing). In
addition, assume that dealers will revert to their traditional ending inventory
levels equal to a half‐year’s cost of goods sold. You should assume that
dealers’ inventories at the end of each year can be retained for sale in the next
year (assuming proper care) and that dealers will eventually pay Ceres for the
products they purchase.  
Total sale=sales to dealers (dealer sales+ inventory)/80% 
Assumption: Dealer’s sales 
35.1 million in 2005 to 42.6 million in 2006 21% increase 
Dealer sales: 81% sales from dealer 
28.4 millions in 2005 34.5 millions in 2006 
Dealer inventory: 10 million in 2005; 23 millions in 2006 
Dealer’s sales=Company to dealer sales-inventory 
2005 dealer’s sales=28.4-10=18.4 million;  
2006 dealer’s sales=34.5-23=11.5 million  
  
Company sales projection: 
Dealer sales=Dealer’s sales+ inventory 
Total sales=dealer sales/80% 
1. 2007 Dealer’s sales=11.5*115%=13.22  
2008 Dealer’s sales=13.22*115%=15.2 
2. Inventory=50% of goods sold 
Cost of goods sold=82% of sales (estimated) 
2007 Inventory=50% of goods sold=50%*82%*13.22=5.42 
2008 Inventory=50%*82%*15.2=6.23 
3. Dealer sales 2007=13.22+5.42=18.64 
              Dealer sales 2008=15.2+6.23=21.43 
4. Total sale 2007 =18.64/80%=23.3millions 
     Total sales 2008=21.43/80%=26.79millions 

5. Using the assumptions listed below, and your forecasted sales from
question 4 above, prepare the projected Income Statement, Balance
Sheet and Cash Flow Statement (using the indirect method) for 2007 and
2008 (If necessary, please state and explain any other assumptions you
make).  

Case 2 - Q5 Group
5.xlsx

6. How would you evaluate the GetCeresTM program? Should it be

expanded? (Hint: consider Ceres’ compliance with loan covenants.)

The GetCeres program is not a good one and we think it should not be

expanded. GetCeres gets its sales increase by advancing money to the
dealers. This kind of channel buffer will increase the
account receivables ,and therefore, increase the probability of the allowance
for doubtful accounts. We could also get more clear about GetCeres’ ability to
generate profit by looking at the ROE. ROE of GetCeres from 2002~2006E
is 23.7%，21.3%，17.9%，17.8%，16%. As we can see from the data, the
ROE is decreasing instead of increasing. This is not a good signal for further
expansion. In 2004, GetCeres’s CEO tried to boost its sales by adding
sales force,  increasing marketing budget and making compensation to
the dealders. However, the ROE is decreasing with the expanding.  
To sum up, we believe it should not be expanded. If it continues to expand, it
may be in trouble with its poor cash flow.