Name Asish Sabat

Question 1

Part A

$ 226 thousand profits estimated for the year 2006 (E) would translate to “cash
flow from operations” for the same year.

Investing cash flow has contributed majorly to the decrease in “change in cash”
by the company from the year 2003- 2006(E)

Part B

1.Trend in cash flow from the “Operating Activity “is decreasing from 2003 to
2006 (E).

Reason: Due to the Increase in Accounts Receivables.

Year 2003 2004 2005 2006

Accounts Receivables -920 -2416 -3465 -4185

In $ thousand

2. Trend in “Investing Activity” is Decreasing from 2003 to 2006(E)

Reason: Due to investment in Property, Plant and Equipment and some

Investment in Land as well.
 Year 2003 2004 2005 2006

Investment in -835 -734 -1215 -1398

Property,
Plant and
Equipment.

Investment in -1300 -1103

Land.

Debt Issuance 1,494 1,850 2,128 2,006

Retirement of Debt -315 -352 -525 -730
Dividends -226 -224 -298 -307
Financing Cash Flow 953 10,274 1,306 969

3.Trend in “Financing Activities” is constant.

Reason: As Retirement of Debt and Dividends are almost similar hence there is
not much change in the Financing activities.

Part c:

The Cash Flow Profile of the company for the year of 2006(E) is Negative.

Self-Financing of Investments: The Cash flow from the operations are high and it is able to
finance its growth the bar of operating activities is higher than the other activities.

CFO ($226 thousand) >CFI ( -1398) +CFF (969)

Hence it can self-finance its own investments.

Funding of Investment: The Funding of Investment as shown by the graph is done by both Cash
flow from Operations and cash flow from financing activities.
Question 2

Part A:

Operating Working Capital= Account

Receivables +Inventory- Accounts Payable.

Year 2002 2003 2004 2005 2006

10,28 14,47
3,485 4,405 6,821
Account receivable 6 1
Inventory 3,089 2,795 3,201 3,291 3,847
Accounts Payable 2,034 2,973 4,899 6,660 9,424
OWC= 4540 4227 5122 6917 8894

Part B:

Operating Working Capital Ratio =Operating Working

Capita / Sales

Year 2002 2003 2004 2005 2006

Operating Working Capital 4,540 4,227 5,122 6,917 8,894
Sales 24,652 26,797 29,289 35,088 42,597
5 6 6 5 5

Part C:

DSO=Accounts 2002 2003 2004 2005 2006

Receivables/Sales revenue per
day
Accounts Receivables 3,485 4,405 6,821 10,286 14,471
Sales Revenue per day = 69 75 81 98 118
sales/360 days
DSO 51 59 84 105 123

DIO= Inventory /Cost of goods

Sold per day
 DIO=inventory /COGS per
day
Year 2002 2003 2004 2005 2006
Inventory 3,089 2,795 3,201 3,291 3,847
Cost Of goods sold per day = 57 60 66 80 98
COGS/360
DIO 54 47 48 41 39

DPO= Accounts payable/COGS per day

Year 2002 2003 2004 2005 2006

Accounts payable / 2,034 2,973 4,899 6,660 9,424
Cost Of goods sold per day = 57 60 66 80 98
COGS/360
DPO 36 50 74 83 96

Part D:

The Implication of long credit given to Dealers lead to the negative change in cash which is not profitable
for the company if there is a delay in payment by the customers the OWC is renewed and its requirement
increases which causes loss for the company. The OWC shows that it is increasing which says that sales
are happening but the dealers are delaying the payment which shows in the DSO it is in Increasing trend
but DIO is decreasing showing sales are good.
Question 3

Part A :

ECONOMICAL BALANCE SHEET:

At December 31 2002 2003 2004 2005 2006E

Capital Employed
Operating working
capital 4540 4227 5122 6917 8894
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Inventories 3,089 2,795 3,201 3,291 3,847
Other Assets 645 645 645 645 645
Plant, Property, &
2,257 2,680 2,958 3,617 4,347
Equipment (net)
Accounts Payable 2,034 2,973 4,899 6,660 9,424
Land 450 1,750 2,853 2,853 2,853
Total Capital Employed 13,761 18,044 23,417 27,609 35,056
Capital Invested
net debt 2,868 3,211 4,433 5,696 7,175
Cash 705 1,542 1,818 2,158 1,955
Current Portion of Long-
315 352 525 730 649
term Debt
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 Capital Invested 13,761 18,044 23,417 27,609 35,056
Question 4

Part A :

The key profitability ratios for the years 2002 to 2006(E) is:

Year 2002 2003 2004 2005 2006

Variable Margin (Sales 6% 5% 5% 5.40% 5.60%
revenue-COGS)/sales X 100
Operating Margin( Operating 15% 11% 12% 12% 14%
Income or EBIT /sales
Revenue)
Return on Equity 0.24 0.21 0.18 0.18 0.16
Return On Average Capital 9.7% 10.4% 13.24% 13.84% 20.4%
Employed

Part B :

The Trend in Roe is decreasing.

Reason: Due to the Increase in Equity of the shareholders from 2003 -2006 the company’s Return of
Equity is decreasing which is not good and to Leverage the Finances we can borrow from the banks and
get an optimum leverage which will decrease the shareholder’s equity and keep a balance between the
bank and the shareholders

Shareholders’ Equity : 5,024 6,091 7,146 8,336 9,563

Part C:

The Trend in RoACE is constant and the drivers of the operating margin ratio

2002 2003 2004 2005 2006

6.60% 8.70% 8.20% 8% 7%

The margins of the company are constant but the efficiency which is calculated as EBIT/(1-T)*100 this will
be the earnings after the taxes before interest/ (capital employed beginning+ capital employed ending)/2
this is RoACE of the company which is increasing showing the efficiency of the company.
Question 5

Part A:

Pros of the Get Ceres Program:

1.Get Ceres program sales had increased to $35.1 million dollars in 2005 to $42.6million
in 2006, approximately 80% of sales were to dealers.

2.The Company was very excited as it had done well with financial viability with the
breakeven point approximately $30 million of revenues under the current cost structure.

Cons of the Get Ceres Program:

1.Regardless of the payment terms given to the dealers, the payment was delayed by
the customers to 120 days which affected the business drastically. Many dealers did not
pay until they sold the product.

2 Higher the price point of the organic seedling meant even more dollars would be tied
up in the inventory which the dealers were reluctant to do so.

Recommendations:

The Idea of Get Ceres of the program Is good but I would not recommend to continue
with this program for long term because the company will land the company paying
higher interest and due to which it will affect the profit margins and the account
receivables of the company by which increasing in negative manner and as a result a
major loss will happen for the company.