Question 1 (10 marks)

Take a look at the cash flow profile of the company, and analyse the cash flow
statement step by step through the following questions.
 
Note: Use tab 3 of the Excel file attached above to access the cash flow statement
of the company.
 
Question 1A: The company’s profits have increased by ~30% from 2002 to
2006(E). How much of the profits estimated for the year 2006(E) will translate to
the 'cash flow from operations' for the same year? Which of the three categories in
the cash flow statement has contributed majorly to the decrease in the 'change in
cash' by the company from 2003 to 2006(E)?  (1+1 marks)
 
(Note: 'Change in cash' is the same as 'Total cash generated'. The (E) beside a
year indicates that the figures are expected in the future, i.e. the case study
analysis is taking place before the year.)
 
Question 1B: What is the trend in cash flow from 'operating activities', 'investing
activities' and 'financing activities' over the years? Identify at least one reason for
the increase/decrease in each of the three categories of the cash flow
statement. Explain your answer. (Note: Trend indicates whether the numbers are
increasing/decreasing over the years) (2+3 marks)
 
Question 1C: Given below is the expected cash flow profile of the company for
the year 2006(E).
 Cash Flow Profile

Analyse the expected cash flow profile of the company for the year 2006(E) and
comment on any 3 of the following factors: 'self-financing of investments', 'funding
of investments', 'cash position of the company' and 'free cash flow'. (3 marks)
 
Question 2 (11 marks)
As a part of the GetCeres TM program, Ceres Gardening Company started
extending an increased credit period to its dealers. Look at the operating working
capital of the company and analyse the impact of this decision on its operating
working capital step by step through the following questions.
 
Question 2A: Calculate the operating working capital of Ceres Gardening
Company for 2002–2006(E). (2 marks)

Question 2B: Calculate the operating working capital/sales ratio of Ceres

Gardening Company for 2002 to 2006(E).  (2 marks)
Question 2C: Calculate the DIO, DSO and DPO for the company from 2002 to
2006(E). (2+2+2 marks)

Question 2D: What is the implication of the long credit period given to dealers by
Ceres Gardening Limited on its working capital? Explain your answer by
specifying at least one reason. (1 mark)
 
Question 3 (3 marks)
Prepare and present the economic balance sheet for Ceres Gardening Company and
calculate the capital employed by the company.
 
Question 4 (12 marks)
Analyse the key profitability ratios and identify the reason for the change in them
by answering the following questions.
 
Note the following assumptions for solving this question:
 The key profitability ratios are Variable Margin (as a % of sales), Operating
Margin, Return on Equity and Return on Average Capital Employed.
 Assume that there is no change in the capital employed during the year 2002
so that the capital employed at the beginning of the year is the same as that
during the ending of the year.
 The gross profit is also known as the variable margin.

Question 4A: Calculate the key profitability ratios for the years 2002 to 2006(E).
(8 marks, 2 for each key ratio)

Question 4B: What is the trend in RoE from 2002 to 2006(E)? List down at least
one reason for the increase/decrease in RoE by assessing the drivers of RoE.
Explain your answer in not more than 30 words. (1+1 marks)

Question 4C: What is the trend in RoACE from 2002 to 2006(E)? List down at

least one reason for the increase/decrease in RoACE by assessing the drivers of
RoACE. Explain your answer in not more than 30 words. (1+1 marks)

Question 5 (4 marks)
List down at least two pros and two cons of the GetCeres program for Ceres
Gardening Company. Would you recommend continuing with the program? Justify
your answer.