1) According to the financial statement and financial-ratio analysis of Horniman Horticulture, the revenue of this company kept growing from 788.5 thousand (in 2002) to 1048.8 thousand dollars(in 2005).
In addition, the growth rate of revenue generally rose from 2.9% to 15.5%, even though the benchmark was only -1.8%. Moreover, in general, the margin, NFA turnover, ROA and ROC rose toward and above the benchmark from 2002 to 2005.
To conclude, the profitability of Horniman Horticulture was better than benchmark.(strength) However, the cash account in Horniman Horticulture balance sheet went down dramatically from 2002 to 2005. In 2005, the company only held 9.4 thousand dollar as cash. As a result, it seems that Horniman Horticulture might not have enough cash to pay for operating expenditure and the liquidity risk may be higher. It would affect the operating activities and profitability of the company negatively. Additionally, there was a continuous increase in accounts receivable and receivable days, respectively, from 90.6 to 146.4 thousand dollars and from 41.9 to 50.9 days during these 4 years.
The Essay on Case 9: Horniman Horticulture
... some financial leverage to solve this problem. |Projected Horniman Horticulture Financial Summary (in thousands of dollars) | | | | | | | | | | |2002 |2003 |2004 |2005 | ... business’s profitability. 5. What can the company do to solve its cash problem? – Offers discount payment ... form partners. 6. Calculate the sustainable growth of the company in 2005: |Sustainable growth = ROA x Leverage x ...
That means much money was paid on credit by the consumers. Consequently, it is possible that the investment was relatively inefficient due to the higher accounts receivable and accounts receivable days. Finally, the inventory increased every year and inventory days increased to 476.3 which is larger than benchmark in 2005, which may lead to higher inventory risk.
2) According to the exhibit 1, the operating cash inflow is operating profit before tax plus depreciation, which was 100.0+40.9=140.9 (in thousands of dollars).
Simultaneously, the cash outflow equal to the tax payment (39.2 thousands).
Then, the working capital equals to current assets minors current liability. As a result, the working capital in 2004 and 2005 were respectively 689.1 (732.3-43.2) and 786.3(833.6-47.3).
Hence, the change in working capital was 97.2 (786.3-689.1).
Furthermore, the capital expenditure was 4.5 in 2005.
Finally, the FCFE can be calculated as 140.9-39.2-97.2-4.5=0.1 Cash cycle equals to inventory days plus receivable days minors payable days. Hence, cash cycle in 2005 was 476.3+50.9-9.9=517.3 days. According to the calculation and the case, the company used it cash to buy the inventory and 12-acre parcel of farmlands to expand the company scale and range of product. Additionally, the company paid premium prices for plants that delivered “instant landscape”. Then, the company paid for supplier within 10 days for discount.
4) As can be seen from the policy, if the company paid to the supplier within 10 days (the payment term is 30 days), there would be a 2% discount of the payment. If the company preferred to pay suppliers early for the discount, the payable days would be relatively few. That means, the liquidity risk of the company will be low. Simultaneously, the payment will be less as well.
However, resulting from paying early, the company may hold less cash for operating activities of company. Moreover, the cash cycle might be longer, the company could suffer from tough capital turnover. The company should find a balance between cash and account payable to ensure the number of cash could meet the operating demand. Horniman Horticulture need to balance the liquidity risk and operating risk.
The Term Paper on Topps Company Products Industry Risk
The Topps Company, among other things discussed later, is in the business of manufacturing chewing gum and confections. According to the Business and Company Resource Center, the Topps is involved in ten different industry categories. They are listed here with their respective SIC/NAICS codes: Commercial Printing (2759), Chewing Gum (2067), Candy and Other Confectionary products (2064), ...
5) Firstly, the company should borrowing money from bank as short-term or long-term liability to pay suppliers to alleviate the pressure of money even though it would increase the liquidity risk and inventory risk. Secondly, the company could provide shorter payment terms to costumers.
Otherwise, the company would suffer from lack of cash and the operating activities would be hindered. Thirdly, the manager of the Horniman Horticulture could slow down the speed of expansion to improve the abilities of withstanding risks.
6) Sustainable growth equals to ROC times leverage times retention. Sustainable growth in 2005 = 5.4%*(1181.5/1134.2)*(1-(185.1/60.8)) = -0.115 Economic profit= (ROC-cost of capital)*total assets
= (5.4%-10%)*1181.5= -54.349 According to the calculation, this company did not earn the sufficient return on assets because both the sustainable growth and economic profit were negative. That may indicate that the growth of the company is unsustainable although the growth rate increased rapidly. Additionally, the economic profit was negative as well.
