Name Nikita Pansare

Question 1

For the year 2006 (E), estimated $226 thousand profits would translate to “cash flow
from operations” for the same year.

Investing cash flow has contributed majorly to the decrease in “change in cash” by the
company from the year 2003-2006 (E)

1. Trend in cash flow from the “Operating Activities” is decreasing from 2003 to
2006 (E).
Reason: Due to the Increase in Accounts Receivables.

Years Ending December 31 2003 2004 2005 2006E

Change in Accounts Receivable In
-920 -2,416 -3,465 -4,185
$ thousand

2. Trend in cash flow from “Investing Activities” is Decreasing from 2003 to 2006
(E).
Reason: Due to investment in Property, Plant and Equipment and some Investment
in Land as well.

Years Ending December 31 2003 2004 2005 2006E

Investment in Property, Plant &
-835 -734 -1,215 -1,398
Equipment
Investment in Land -1,300 -1,103 0 0

3. Trend in cash flow from “Financing Activities” is constant.

Reason: As Retirement of Debt and Dividends are almost similar, there is not
much change in the trend in cash flow from Financing Activities.
 Years Ending December 31 2003 2004 2005 2006E
Debt Issuance 1,494 1,850 2,128 2,006
Retirement of Debt -315 -352 -525 -730
Dividends -226 -224 -298 -307
Financing Cash Flow 953 1,274 1,306 969

1C: The cash flow profile of the company for the year 2006 (E) is Negative.

• Self-Financing of Investments: The cash flow from the operations are high and
inflow from financing Activities means company can finance its growth. The bar of
operating activities is higher when compared to other activities.
CFO ($226 thousand) >CFI (-$1,398) + CFF ($969)
Hence, company can self-finance its own investments.
• Funding of Investments: The Funding of Investments 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= Negative.

Question 2

2A: Operating Working Capital=Account Receivables + Inventory - Accounts Payable

Year 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: Operating Working Capital/Sales Ratio:

Year 2002 2003 2004 2005 2006E

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

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

OWC/Sales Ratio 0.184 0.158 0.175 0.197 0.209

2C: DIO = Inventory/Cost of Goods Sold per day:

Years Ending December 31 2002 2003 2004 2005 2006E

Inventories 3,089 2,795 3,201 3,291 3,847
Cost of Goods Sold 20,461 21,706 23,841 28,597 35,100
Cost of Goods Sold per
57 60 66 80 98
day= COGS/360 days
DIO 54 46 48 41 39

DSO = Accounts Receivables/Sales Revenue per day:

Years Ending December 31 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 Revenue per
69 75 81 98 118
day=Sales/360 days
DSO 51 59 84 105 123

DPO = Accounts Payable/COGS per day:

Years Ending December 31 2002 2003 2004 2005 2006E

Accounts Payable 2,034 2,973 4,899 6,660 9,424
Cost of Goods Sold 20,461 21,706 23,841 28,597 35,100
Cost of Goods Sold per day=
57 60 66 80 98
COGS/360 days
DPO 36 50 74 83 96
 2D: Due to the long credit period given to the dealers by Ceres Gardening Limited, its
working capital requirement increased by more than 20%.

As the Days Sales Outstanding (DSO) increased to 123 days in 2006 (E), the accounts
receivable increase. This increased account receivables which is a cash outflow
contributed to higher working capital requirement.

Question 3

Economical balance sheet:

Capital Employed = Fixed Assets + Operating Working Capital

Capital Invested = Shareholders Equity + Net Debt - Cash

Economical Balance Sheet (in $ thousand, some numbers are rounded)

At December 31 2002 2003 2004 2005 2006E
Plant, Property, & Equipment
2,257 2,680 2,958 3,617 4,347
(net)
Other Assets 645 645 645 645 645
Land 450 1,750 2,853 2,853 2,853
Non-Current Assets 3,352 5,075 6,456 7,115 7,844
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
Capital Employed 7,892 9,301 11,578 14,032 16,738
Current Portion of Long-term
315 352 525 730 649
Debt
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
Cash 705 1,542 1,818 2,158 1,955
Capital Invested 7,892 9,301 11,578 14,032 16,738
Question 4

4A: Variable Margin = (Sales revenue-cost of goods sold)/Sales

Operating Margin = Operating Income/Sales

Return on Equity = Net Profit/Owner’s Equity

Return on Average Capital Employed = Earnings after taxes before interest/ {(Opening
capital employed + Closing Capital Employed)/2}

(in $ thousand, some numbers are rounded)

Year 2002 2003 2004 2005 2006E
Sales 24,652 26,797 29,289 35,088 42,597

Cost of Goods Sold 20,461 21,706 23,841 28,597 35,100

Earnings before 1,641 2,338 2,408 2,836 3,018

Interest & Taxes
Interest 187 349 440 547 658

Earnings before Taxes 1,454 1,989 1,968 2,289 2,360

Taxes 264 696 689 801 826
Earnings after taxes
before interest 1,344 1,520 1,565 1,843 1,962
Net Income 1,191 1,293 1,279 1,488 1,534
Average Capital
Employed 8,282 10,491 12,872 15,460 18,043

Shareholders’ Equity 5,024 6,091 7,146 8,336 9,563

Variable Margin as
percentage 17% 19% 18.60% 18.50% 17.60%

Operating Margin as
percentage 6.66% 8.72% 8.22% 8.08% 7.09%

Return on Equity as
percentage 23.70% 21.23% 17.90% 17.85% 16.04%

Return on Average
Capital Employed as
percentage 16.23% 16.19% 13.40% 13.01% 11.71%
 4B: The trend in RoE from 2002 to 2006 (E) shows decreasing over the years.

Reason: Due to the Increase in Equity of the shareholders from 2003 – 2006(E) the
company’s Return on 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.

Year 2002 2003 2004 2005 2006E

Shareholder’
5,024 6,091 7,146 8,336 9,563
s Equity

4C: The trend in RoACE from 2002 to 2006 (E) shows decreasing over years.

The Drivers for RoACE are Operating margin and Efficiency. The reason for decreasing
RoACE is the decrease in Operating margin of the company. Operating Margin of the
company is decreasing over the years. In 2003, the operating margin was 8.72% and in
2006 (E) it reduced to 7.09%

Question 5

Pros of the GetCeres Program:

1. Get Ceres program sales had increased to $35.1 million dollars in 2005 to $42.6
million in 2006, approximately 80% of sales were to dealers.
2. The company was buoyant 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 GetCeres Program:

 1. Regardless of the payment terms given to the dealers, the payment were delayed
by the customers to 120 days which affected the business drastically. Many
dealers did not pay until they sold the product.
2. Higher the price point of the organic seedling meant even more dollars would be
tied up in the inventory which the dealers were reluctant to do so.

Recommendation:

Though The Idea of The GetCeres program was enthralling but I would not recommend
to continue with this program as the long term debt taken by the company will land the
company paying higher interest and will affect the profit margins and the account
receivables of the company are increasing in the negative manner due to which it will go
in major losses and the dealers are also facing problems in managing the inventory as
the sales increase during the seasonal dating which can affect the dealers to invest in
more.