Scribd Logo
Upload

Welcome to Scribd!

  • 13 views

    IMT - Ceres - Hoang Thuan Nguyen

    Uploaded by

    HoangThuan Nguyen
    The Ceres Gardening company is projected to have $6.132 million in profits and cash flow from operations in 2006. However, it will have a negative free cash flow that year due to investments in property, plant, and equipment exceeding its cash from operations. This means the company will need external financing to fund its investments and growth. Its increasing accounts receivable and decreasing change in inventories also contributed to a decline in operating cash flow. The company should try to generate more cash internally or reduce capital expenditures to improve its financial position.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    IMT - Ceres - Hoang Thuan Nguyen

    Uploaded by

    HoangThuan Nguyen
    13 views4 pages
    The Ceres Gardening company is projected to have $6.132 million in profits and cash flow from operations in 2006. However, it will have a negative free cash flow that year due to investments in property, plant, and equipment exceeding its cash from operations. This means the company will need external financing to fund its investments and growth. Its increasing accounts receivable and decreasing change in inventories also contributed to a decline in operating cash flow. The company should try to generate more cash internally or reduce capital expenditures to improve its financial position.

    Original Title

    IMT_Ceres_ Hoang Thuan Nguyen

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The Ceres Gardening company is projected to have $6.132 million in profits and cash flow from operations in 2006. However, it will have a negative free cash flow that year due to investments in property, plant, and equipment exceeding its cash from operations. This means the company will need external financing to fund its investments and growth. Its increasing accounts receivable and decreasing change in inventories also contributed to a decline in operating cash flow. The company should try to generate more cash internally or reduce capital expenditures to improve its financial position.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    13 views4 pages

    IMT - Ceres - Hoang Thuan Nguyen

    Uploaded by

    HoangThuan Nguyen
    The Ceres Gardening company is projected to have $6.132 million in profits and cash flow from operations in 2006. However, it will have a negative free cash flow that year due to investments in property, plant, and equipment exceeding its cash from operations. This means the company will need external financing to fund its investments and growth. Its increasing accounts receivable and decreasing change in inventories also contributed to a decline in operating cash flow. The company should try to generate more cash internally or reduce capital expenditures to improve its financial position.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    Name Hoang Thuan Nguyen

    Question 1

    The profits estimated for the year 2006(E) that will translate to the 'cash flow from
    operations' for the same year is $6.132 million. Investing cashflow caused the decrease
    in the “change in cash”.

    The decrease in cash flow from operating activities is due to the decrease in the
    company's profitability and an increase in changes in working capital, specifically the
    increase in the change in accounts receivable and the decrease in the change in
    inventories. This means that the company is not collecting cash from its customers as
    quickly as before and is carrying more inventory.
    The increase in cash outflow from investing activities in 2006(E) is mainly due to the
    company investing more in PP&E to support its growth.
    The decrease in net cash inflow from financing activities in 2006(E) is mainly due to an
    increase in debt retirement and a decrease in dividends paid out to shareholders.

    The Ceres Gardening company does not have enough cash to finance its investments
    and will need to obtain external financing. They can try to generate more cash from
    operating activities or reduce its investment in property, plant, and equipment to reduce
    their debts.
    Their investment in property, plant, and equipment is the main reason for its negative
    free cash flow in 2006(E). The company needs to invest in PP&E to support its growth,
    but it does not have enough cash to finance these investments.
    The company's negative free cash flow in 2006(E) indicates that it is not generating
    enough cash from its operations to fund its investments. That is a concern as it indicates
    that the company may have difficulty in funding its growth in the future.

    Question 2

    2002 2003 2004 2005 2006E


    Operating Working Capital 4540 4227 5122 6917 8894
    2002 2003 2004 2005 2006E
    Operating Working 18% 16% 17% 20% 21%
    Capital ratio

    2002 2003 2004 2005 2006E


    DSO 50,9 59,2 83,8 105,5 122,3
    DIO 54,3 46,4 48,3 41,4 39,5
    DPO 35,8 49,3 74,0 83,8 96,7

    When Ceres Gardening Limited gives a long credit period to its dealers, it means that
    the company is extending its accounts receivable period. Ceres Gardening Limited is
    essentially using their working capital to fund its dealers' purchases. This can lead to a
    decrease in the company's working capital, which may result in liquidity issues.

    Question 3

    At December 31 2002 2003 2004 2005 2006E

    Assets

    Cash 705 1.542 1.818 2.158 1.955

    Accounts Receivable 3.485 4.405 6.821 10.286 14.471

    Inventories 3.089 2.795 3.201 3.291 3.847

    Current Assets 7.279 8.742 11.839 15.735 20.273

    Plant, Property, & 2.257 2.680 2.958 3.617 4.347


    Equipment (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


    Total Assets 10.631 13.817 18.295 22.850 28.117

    Liabilities &
    Shareholders Equity
    Accounts Payable 2.034 2.973 4.899 6.660 9.424

    Current Portion of Long- 315 352 525 730 649


    term Debt
    Current Liabilities 2.349 3.325 5.423 7.390 10.074

    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

    Total Liabilities & 10.631 13.817 18.295 22.850 28.117


    Shareholders Equity

    The Capital Employed 8.282 10.491 12.872 15.460 18.043


    by the company

    Question 4

    2002 2003 2004 2005 2006E


    Variable Margin 17% 19% 19% 19% 18%
    Operating Margin 6% 7% 7% 7% 6%
    Return on Equity 24% 21% 18% 18% 16%
    Return on Average
    Capital Employed 15% 19% 15% 14% 12%

    The trend in RoE from 2002 to 2006(E) is a decrease from 24% to 16%. The operating
    expensed (marketing, R&D,..) might increase every year and it leads to the decrease of
    RoE.

    The trend in RoE from 2002 to 2006(E) is a decrease from 15% to 12%. A possible
    reason is the company decided to spend more money for investments, but these
    investments did not generate profit during this period.

    Question 5
    Pros:

    - Bring a new experience for customer by providing organic products, good


    for health.
    - Increase brand awareness and engagement through marketing activities,
    become the top-of-mind in their industry.

    Cons:

    - Require more expenses for a loyal customer program (rewards,


    advertising, incentive…)
    - Need a complex system for managing this program effectively, which may
    require more expenses.

    They should keep growing this program, organic products is a potential


    industry in the future.

    You might also like