Name SAMRITI RAHEJA

Question 1

Write your answer for Part A here.

Out of the net income of 1534 expected to earned in 2006, only 226 will translate to
the
‘Cash flow from operations’ for the year 2006. Only 14.73% of the net income will
translate to the ‘cash flow from operations.
“Investing cash flow’ has contributed majorly to the decrease in the ‘change in cash
from 2003 to 2006.

Write your answer for Part B here.

Trend in cash flow from ‘operating activities’ are constantly decreasing. The reason
for the same is increase in ‘Accounts Receivable
Trend in cash flow from ‘investing activities’ are constantly increasing. The reason
for the same is decrease in “investment in land’ over the years,
Trend in cash flow from ‘financing activities’ are increasing constantly from 2003 10
2005 but expected to decrease in 2006. Reason for increase and decrease in cash
flow from ‘investing activities’ is the amount of debt issued by the company in each
year.

Write your answer for Part C here.

The cash flow profile of the company for the year 2006(E) is negative.

Self-financing of investments - the cash flow from operations are high and is able to
finance its growth. CFO (226) >CF1 (-1398) +CFF (969). Hence it can self-finance its
own investment.
Funding of investment- the funding of investment is done partially by ‘cash flow
from operations’ and partially by ‘cash flow from financing activities’.
Free cash flow- No free cash flow is available for stakeholder.
Free cash flow= CFO -CFI
Free cash flow = 226 – 1398 = -1172
Question 2

Write your answer for Part A here. Paste the excel sheet containing your calculations
here.

YEAR 2002 2003 2004 2005 2006E

ACCOUNT 3485 4405 6821 10286 14471

RECEIVABLE

INVENTORY 3089 2795 3201 3291 3847

ACCOUNTS 2034 2973 4899 6660 9424

PAYABLE

OPERATING 4540 4227 5122 6917 8894

WORKING

CAPITAL

Write your answer for Part B here. Paste the excel sheet containing your calculations
here.

Operating working capital = Accounts receivable + Inventory – Accounts payable

Operating working capital ratio = operating working capital/sales

YEAR 2002 2003 2004 2005 2006E

OPERATING 4540 4227 5122 6917 8894

WORKING
 CAPITAL

SALES 24652 26797 29289 35088 42579

OWC RATIO 0.18 0.16 0.17 0.2 0.21

Write your answer for Part C here. Paste the excel sheet containing your calculations
here.

YEARS 2002 2003 2004 2005 2006E

ACCOUNTS 3485 4405 6821 10286 14471

RECEIVABLE

SALES REVENUE 69 75 81 98 118

PER DAY

DAYS SALES 50.50 58.73 84.20 104.95 122.63

OUTSTAND

Days sales outstanding = Accounts Receivable / sales revenue per day

YEARS 2002 2003 2004 2005 2006E

INVENTORY 3089 2795 3201 3291 3847

COGS PER DAY 57 60 66 80 98

DAYS INVENTORY 54.19 46.58 48.5 41.13 39.25

OUTSTANDING
 Days inventory outstanding = inventory/ cost of goods sold per day

YEAR 2002 2003 2004 2005 2006E

ACCOUNTS 2034 2973 4899 6660 9424

PAYABLE

COGS PER DAY 57 60 66 80 98

DAYS PAYABLE 35.68 49.55 74.22 83.25 96.16

OUTSTANDING

Days payable outstanding = accounts receivable/ cost of goods sold per day

Write your answer for Part D here.

Based on the DSO and DPO computed the days that the receivable is outstanding is
longer than days payable outstanding. Hence it is possible that there is a shortage of
cash.

Question 3

YEAR 2002 2003 2004 2005 2006E

ACCOUNTS 3,485 4,405 6,821 10,286 14,471

RECEIVABLE

INVENTORY 3089 2795 3201 3291 3847

LAND 450 1750 2853 2853 2853

PP&E 2257 2680 2958 3617 4347

OTHER ASSET 645 645 645 645 645

ACCOUNTS (2034) (2973) (4899) (6660) (9424)

PAYABLE

TOTAL CAPITAL 7892 9302 11579 14032 16739

EMPLOYED

CURRENT PORTION 315 352 525 730 649

OF LONG TERM

DEBT

LONG TERM DEBT 3258 4400 5726 7123 8480

SHAREHOLDERS 5024 6091 7146 8336 9563

EQUITY

CASH 705 1542 1818 2158 1955

TOTAL CAPITAL 7892 9302 11579 14032 16739

INVESTED

Write your answer for Part A here. Also, paste the economical balance sheet prepared by
you here.
Question 4

Paste the excel sheet containing the final answers for Part A here.

Variable margin= (sales revenue - cost of goods sold/sales

Operating margin= operating income/sales

Return on equity = Net profit / Owners equity

ROACE = Earnings after taxes before interest / Average capital employed

YEAR 2002 2003 2004 2005 2006

SALES REVENUE 24652 26797 29289 35088 42579

COGS 20416 21706 23841 28597 35100

SALES 24652 26797 29289 35088 42579

VARIABLE 17% 19% 18.60% 18.50% 17.60%

MARGIN

OPERATING 1641 2338 2408 2836 3018

INCOME

SALES 24652 26797 29289 35088 42579

OPERATING 6.66% 8.72% 8.22% 8.08% 7.09%

MARGIN

NET PROFIT 1191 1293 1279 1488 1534

OWNERS 5024 6091 7146 8336 9563

EQUITY
 RETURN ON 23.70% 21.23% 17.90% 17.85% 16.04%

EQUITY

EARNING AFTER 1344 1642 1719 2035 2192

TAX BEFORE

INTEREST

AVERAGE 7892 12543 11579 18595 22402

CAPITAL

EMPLOYED

ROACE 17.46% 19.09% 16.47% 15.89% 14.25%

Write your answer for Part B here.

The trend in ROE from 2002 to 2006 (E) shows decreasing over years.

The reason for decrease in ROE is the decrease in performance of the operations of the
company. The performance of the company measured using return on capital employed
ROCE

The drivers for ROACE are operating margin and efficiency. The reason for decrease in
ROACE is the decrease in operating margin of the company. Operating margin for the
company is decreasing over the years. On 2003 the operating margin was 8.72% and on
2006(E) is reduced 10 7.09%.

Write your answer for Part C here.

The trend in ROACE is decreasing over the years from 2003 to 2006

Question 5
Write your answer for Part A here.

Pros of the Get Ceres Program

1. Constant growth in sales it has increased to $35.1 million dollar in 2005 to

$42.6 million 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 break-even 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 dealers, the payment were delayed
by the customer to 120 days which affected the business drastically. Many
dealers did not until they sold the product.

2. Higher the price point of the organic seedling

3. More cost of inventory.

The program can be continued as it shows a sustainable and positive performance.

As observed in the financial analysis the Activity Ratio of the program shows
positive results as the company can effectively and efficiently leverage its resources.
Moreover, it shows that even with the existence of the project the company has
enough liquidity to satisfy its obligation and continue 10 operate. Most importantly,
the program has high probability of more increased sales in the future as it already
depicts 73% in its early stages
However, the financial leverage shows that there is to0 much Debt outstanding and
most fund outsourcing is done through debt financing. This exposed the company to
high risk of default that might become another drawback. Seemingly, Profitability
ratios shows that the company has less ability to earn income or sales from its own
operations,
Overall, considering all financial evaluations, the company should add measures and
extend policies in order to carry on and manage the program to maximize its
potential for the company