Name Arjun Raj

Question 1
226 Thousand Dollars will translate to cash flow from operations
Investing cash flow is the major contributor to decrease in change in cash

Trends:
1. Operating Activity: There is a decreasing trend in the operating cash flow due to
increase in the Accounts receivables
2. Investing Activity: There is a decreasing trend in investing. Although investment in
PP&E has increased, investment in land is not there anymore.
3. Financing Activity: There is a flat trend in financing. The debt insurance has increase
but dividends and retirement of debt has decreased
The Cash Flow Profile of the company is Negative.

Self-Financing of Investments: The Cash flow from operations can finance its growth

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.

Cash Position of the Company: The cash position of the company is Negative which is
calculated by adding CFO+CFI+CFF.

Free cash flow: The company has no free cash flow as it is Negative position
CFO-CFI= Negative free cash flow
Question 2
Operating Working Capital = Account Recievables + Inventory – Accounts payable
2002 2003 2004 2005 2006E
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Inventories 3,089 2,795 3,201 3,291 3,847
Accounts Payable 2,034 2,973 4,899 6,660 9,424

Operating Working Capital 4,540 4,227 5,122 6,917 8,894

Operating working capital/sales ratio = Sales / OWC

200 200 200 200 200
2 3 4 5 6E
4,5 4,2 5,1 6,9 8,8
Operating Working Capital 40 27 22 17 94
24, 26, 29, 35, 42,
Sales 652 797 289 088 597
Sales/OWC 5 6 6 5 5

DSO=Accounts Receivables/Sales revenue per day

Sales per day = Sales/360
DIO = Inventory/Cost of goods sold per day
Cost of goods sold per day = COGS/360
DPO = Accounts payables/cost of goods sold per day
2002 2003 2004 2005 2006E
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Sales 24,652 26,797 29,289 35,088 42,597
Sales Rev per day 68 74 81 97 118
COGS 20,461 21,706 23,841 28,597 35,100
COGS per day 57 60 66 79 98
Accounts Payable 2,034 2,973 4,899 6,660 9,424
Inventory 3,089 2,795 3,201 3,291 3,847
DSO 51 59 84 106 122
DIO 54 46 48 41 39
DPO 36 49 74 84 97

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 the operating capital is renewed, and its
requirement increases which causes loss for the company. The operating capital shows that it is
increasing (meaning sales is increasing) but the dealers are delaying the payment as seen in the
increasing trend of DSO and DIO is decreasing showing sales is good.
Question 3
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
Plant, Property, & Equipment (net) 2,257 2,680 2,958 3,617 4,347
Other Assets 645 645 645 645 645
Land 450 1,750 2,853 2,853 2,853
Accounts Payable 2,034 2,973 4,899 6,660 9,424
Total Capital Employed 14466 16501 21600 27609 35056
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-term Debt 315 352 525 730 649
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 12,170 15,596 19,647 24,044 27,823
Question 4

2006
At December 31 2002 2003 2004 2005 E
Variable Margin (Salesrevenue-COGS)/sales X 100 6.0% 5.0% 5.0% 5.4% 5.6%
Operating Margin( OperatingIncome or EBIT 15.0 11.0 12.0 12.0 14.0
/salesRevenue) % % % % %
Return onEquity 0.24 0.21 0.18 0.18 0.16
10.4 13.2 13.8
Return On Average CapitalEmployed 9.7% % % % 2.4%

ROE is decreasing

Reason: With 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
shareholders equity and keep a balance between the bank and the shareholders
Share holders Equity : 5,024 6,091 7,146 8,336 9,563
The trend in RoACE is constant and the drivers of the Operating Margin

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
Question 5
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.The long credit period
2. More money tied up in the market