Welcome to this case study!

 
In this case study, you will be required to use financial statements in order to analyse the
holistic financial information of a company with regard to its working capital management,
cash flow management and profitability metrics. 
 
The case study revolves around a company, Ceres Gardening Company, which is involved in
the organic gardening industry, selling seeds, small plants, and related items.
 
While performing the analysis, you must apply the concepts and formulas covered in the
course and the additional assumptions given in the questions. The objective is to put
yourself in the shoes of the protagonist of the case study and think from his perspective.
 
This will help you appreciate the utilisation of financial metrics and operating levers of a
company in understanding the impact of financial decisions on the performance of the
company. 

Case Study Documents

 Ceres Gardening Company: Funding Growth in Organic Products
 Ceres Gardening Company: Spreadsheet for Students
The two learning objectives of the case study are as follows:
 To analyse the financial statements to draw conclusions on the performance of the
company with respect to its working capital, cash flow and profitability
 To identify the impact of business decisions on the financial performance of the
company
Graded: Analysis of Ceres Gardening Company

 
In this project, you will analyse the financial health of Ceres Gardening Company in light of
profitability, cash flow statement and working capital management.

Please open “Financial Statements: Ceres Gardening Company.xls”

Additional Information:
 
The following document is a quick sheet to the important financial metrics and their
formulas. Use it to save your time while answering questions.

Please open “Ratios at Glance.pdf”

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)?  (3+2 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) (4+9 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'. (7 marks)
 
Question 2 (25 marks)
As a part of the GetCeresTM 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). (5 marks)

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

Company for 2002 to 2006(E).  (5 marks)

Question 2C: Calculate the DIO, DSO and DPO for the company from 2002 to
2006(E). (4+4+4 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. (3 mark)
 
Question 3 (8 marks)
Prepare and present the economic balance sheet for Ceres Gardening Company for all the
years and calculate the capital employed by the company.
 
Question 4 (30 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). (16 marks,
4 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. (3+4 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. (3+4 marks)

Question 5 (12 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. 

Submission:

Use it submit your answers. Your excel calculations must be pasted inside this submission
file.

File Name: Submission Template

The file shared below is a sample. We have used a sample calculation to demonstrate how
your Excel calculations should be included in the submission.

File Name: Sample Submission