Name SAPTAK SAMADDER

Question 1

The profits estimated for the year 2006(E) that will translate to the cash flow operations
for the same year is $226 thousand.

Out of the three factors in the cash flow statement the factor that mainly contributed to
the change in cash by the company from 2003 to 2006 is the Operating cash flow due to
the increase in accounts receivable.

Trend in cash flow:

1. There is a decreasing trend in cash flow from operating activity from 2003 to
2006 (E).

The reason for this is mainly due to the increase in cash receivables.

2. The trend in investing activity is also in decreasing slope for the year 2003 to
2006 (E)

The investment on PP & E gradually increased over all the years whereas
investment in land lasted for first two years whereas there has been on investment
in other assets.

3. The trend in Financing activity is slightly increasing

This is mainly due to the increase in debt issuance.

Self-financing on investments: Due to low cash flow in operating activities, the self-
financing capability for the company investments is not possible. As per
CFO<CFI+CFF, it can be deduced that Cash from operating activities has to be greater
than the cash required for the funding the investment and financing activities.

Funding of investments: For the year 2006, the cash funds for investments in the
company are used from cash flow from financing activities and operating activities and
the cash balance from the previous year. In this case the cash inflow for financing and
operating activities are $969k & $226k respectively and $203k has been taken from
previous year, whereas the cash out flow is -$1398k

Cash position of the company: Here the cash position of the company is negative since
the CFO+CFI+CFF is negative

Free cash flow: The cash flow for the current situation i.e year 2006(E) is negative since
the cash generated is not sufficient to maintain the financing and investing activities and
since the cash flow is in negative, the debts and dividends cannot be given to the
shareholders.

Question 2

The operating working capital of Ceres Gardening Company for the year 2002-2006(E)
is given as follows:

Year 2002 2003 2004 2005 2006

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
(OWC)
As per formula metrics, Operating working capital (OWC) = Accounts receivable +
Inventories - Accounts payable.

The operating working capital/sales ratio of Ceres Gardening Company for 2002 to
2006(E) is calculated as follows:

Year 2002 2003 2004 2005 2006

Operating working capital (OWC) 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
0.184 0.158 0.175 0.197 0.209
ratio

Operating working capital/sales ratio is dividing the operating working capital to its
sales made in that year.

The DIO, DSO and DPO for the company from 2002 to 2006(E) is calculated in the
below table:

As we know. DIO = Inventory / cost of goods sold per day (COGS), DSO = Accounts
receivables/Sales revenue per day & DPO = Accounts payable/Cost of goods sold per
day,

Let us assume there are 360 days in the year 2002 to 2006, DSO is calculated as:

Year 2002 2003 2004 2005 2006

Accounts receivable 3,485 4,405 6,821 10,286 14,471
Sales 24,652 26,797 29,289 35,088 42,597
Sales revenue per day (sales/360
68 74 81 97 118
days)
Days sales outstanding (DSO) 51 59 84 106 122
 Let us assume there are 360 days in the year 2002 to 2006, DIO is calculated as:

Year 2002 2003 2004 2005 2006

Inventories 3,089 2,795 3,201 3,291 3,847
Cost of goods sold (COGS) 20,461 21,706 23,841 28,597 35,100
COGS per day (COGS/360 days) 57 60 66 79 98
Days inventory outstanding (DIO) 54 46 48 41 39

Let us assume there are 360 days in the year 2002 to 2006, DPO is calculated as:

Year 2002 2003 2004 2005 2006

Accounts payable 2,034 2,973 4,899 6,660 9,424
Cost of goods sold (COGS) 20,461 21,706 23,841 28,597 35,100
COGS per day (COGS/360 days) 57 60 66 79 98
Days payable outstanding (DPO) 36 49 74 84 97

The implication of the long credit period given to dealers by Ceres Gardening Limited is
that it led to an alteration in the cash flow, as the working capital got increased thus
indicating there were a rise in sales.

Even though there were delay in payment from the dealer side the DIO indicated
declining trend thus proving the sales of Ceres Gardening Limited were good.

Question 3

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.

Write your answer for Part B here.

Write your answer for Part C here.

Question 5

Write your answer for Part A here.