Case 9
Case 9
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. 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
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. 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