Name Shubham Mishra

Question 1

1A. The profit estimated for the year 2006(E) is $226 thousand will translate to the 'cash
flow from operations'

Cash Flow from Investment has contributed majorly to the decrease in the 'change in
cash' by the company from 2003 to 2006(E)

1B.

1. Operating Cashflow shows a decreasing trend. The major reason for decreasing
trend of Operating Cash flow is increase in Account Receivable.
2. Investing cash flow shows an increasing trend from the year 2003 to 2005 and
decreasing trend from 2005 to 2006. There is no new investment made in land
after 2004, which led to an increase in Investment Cash Flow.
3. Financing Cash flow has increasing trend from year 2003 to year 2005 and a
decreasing trend from year 2005 to 2006.The increasing trend in Financing Cash
Flow is because we have Issued Debt and It has been decreased as because we
have issued Dividends and Debt has been retired.

1c. After Analyzing the expected cash flow profile of the company for the year 2006(E), I
would comment upon the Self-Financing of Investments. We can see that the cash flow
from Operations is very less due to which we are paying for our Investing activities and
Financing Activities which in turn means we are Self Financing our investment, i.e.,
CFO>CFI+CFF
Question 2

2a.

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

2b.

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
Sales 24,652 26,797 29,289 35,088 42,597
Operating working capital/Sales ratio 0.18 0.16 0.17 0.20 0.21

2c.

  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
Sales 24,652 26,797 29,289 35,088 42,597
Sales Revenue per day 68 74 81 97 118
Operating working capital/Sales ratio 0.18 0.16 0.17 0.20 0.21
Cost of Goods Sold 20,461 21,706 23,841 28,597 35,100
Cost of goods sold per day 57 60 66 79 98
Days Inventory Outstanding (DIO) 54.35 46.36 48.33 41.42 39.45
Days Sales Outstanding (DSO) 50.89 59.18 83.84 105.53 122.30
Days Payables Outstanding (DPO) 35.79 49.32 73.97 83.84 96.66

2d. The Implication for Long Credit Period is done to improve the Operating Working Capital
which will in-turn increase the sales revenue as a result of longer paying terms for the dealers.
Question 3

Economic balance sheet for Ceres Gardening Company

  2002 2003 2004 2005 2006E
Capital Employed          
Plant, Property & 2,25 2,68 2,95 3,61 4,34
Equipment(net) 7 0 8 7 7
45 1,75 2,85 2,85 2,85
Land 0 0 3 3 3
64 64 64 64 64
Other Assets 5 5 5 5 5
3,48 4,40 6,82 10,28 14,47
Account Receivable 5 5 1 6 1
3,08 2,79 3,20 3,29 3,84
Inventories 9 5 1 1 7
2,03 2,97 4,89 6,66 9,42
Account Payable 4 3 9 0 4
7,89 9,30 11,57 14,03 16,73
  2 1 8 2 8
Invested Capital          
Current Portion of Long-term 31 35 52 73 64
Debt 5 2 5 0 9
3,25 4,40 5,72 7,12 8,48
Long-term Debt 8 0 6 3 0
5,02 6,09 7,14 8,33 9,56
Shareholder's Equity 4 1 6 6 3
70 1,54 1,81 2,15 1,95
Cash 5 2 8 8 5
7,89 9,30 11,57 14,03 16,73
  2 1 8 2 8

Question 4

4a. Key profitability ratios for the years 2002 to 2006(E)

 OM=OI/Sales 2002 2003 2004 2005 2006
Operating Income
1,641 2,338 2,408 2,836 3,018
Sales
24,652 26,797 29,289 35,088 42,597
Operating Margin 0.067 0.087 0.082 0.081 0.071

VM=(SR-COGS)/Sales 2002 2003 2004 2005 2006

Sales Revenue 24,652 26,797 29,289 35,088 42,597

COGS 20,461 21,706 23,841 28,597 35,100

Variable Margin 0.17 0.19 0.19 0.19 0.18

RoE = Net Profit/Owner's Equity 2002 2003 2004 2005 2006

Net Profit 1,191 1,293 1,279 1,488 1,534

Owner's Equity 5,024 6,091 7,146 8,336 9,563

RoE 0.24 0.21 0.18 0.18 0.16

  2002 2003 2004 2005 2006

Earnings after taxes before
interest 1,378 1,642 1,719 2,034 2,192

Average Capital Employed 7,892 8,597 10,440 12,805 15,385

RoACE 0.17 0.19 0.16 0.16 0.14

4b. The trend for RoE is decreasing as the Owner’s Equity is increasing constantly from 2002 to
2006(E).
As the Owner’s Equity is increasing, the profit which we are generating is getting diluted to the
Equity shareholders.

4c. The RoACE increased from 2002 to 2003 and then it has started decreasing from 2004 to
2006(E).
The Earnings After Taxes before Interest has been increased which has started decreasing the
 RoACE.

Question 5

Write your answer for Part A here.