Horniman Horticulture
Running head: HORNIMAN HORTICULTURE
Abstract
This case captures the cash-flow and working-capital management problems typical of small, growing businesses. At the end of 2005, Bob and Maggie Brown have completed their third year of operating Horniman Horticulture, a woody – shrub “Landscape Ready” grower in central Virginia. While experiencing booming demand and improving margins, the couple is puzzled by their plummeting cash balance. The case highlights the difference between cash flow and accounting profits, as well as the common negative effects of growth on cash flow.
Introduction
The Horniman Horticulture Case is highlighting the difficulties in cash flow management and proper analysis of working capital. In the case the owners of Horniman Horticulture, Bob and Maggie Brown are experiencing some issues with the company’s recent financial performance in the form of cash flows. The factors that were assessed included the profit margin, ROE, and ROA. These factors paint the picture that the current state of the business is in good standing.
Analysis
The revenues have increased on average 10% each year from 2002 to 2005. However, it is important to note that, during this time cash balances have decreased. Accounts receivable and inventory have increased in this same time span, as well. Cash has decreased from $120.1 to $9.4, a decline of 92% (120.1 – 9.4 / 120.1) over the four year time span. The Accounts Receivable, during this same time, went from $90.6 in 2002 to $146.4 in 2005, an increase of 62% (90.6 – 146.4 / 90.6). Likewise, inventory has increased from $468.3 to $656.9, an increase of 40% (468.3 – 656.9 / 468.3). For accounts receivable (increase of 62%), inventory (increase of 40%), wages payable (increase 24%), other payables and purchases (increase of 75%) from 2002-2005. Other current assets and accounts payable were consistent at 20.9 and 5, respectively, from 2002 - 2005.
Description of the Problem
• Bob’s net income that he takes home in
Abstract
This case captures the cash-flow and working-capital management problems typical of small, growing businesses. At the end of 2005, Bob and Maggie Brown have completed their third year of operating Horniman Horticulture, a woody – shrub “Landscape Ready” grower in central Virginia. While experiencing booming demand and improving margins, the couple is puzzled by their plummeting cash balance. The case highlights the difference between cash flow and accounting profits, as well as the common negative effects of growth on cash flow.
Introduction
The Horniman Horticulture Case is highlighting the difficulties in cash flow management and proper analysis of working capital. In the case the owners of Horniman Horticulture, Bob and Maggie Brown are experiencing some issues with the company’s recent financial performance in the form of cash flows. The factors that were assessed included the profit margin, ROE, and ROA. These factors paint the picture that the current state of the business is in good standing.
Analysis
The revenues have increased on average 10% each year from 2002 to 2005. However, it is important to note that, during this time cash balances have decreased. Accounts receivable and inventory have increased in this same time span, as well. Cash has decreased from $120.1 to $9.4, a decline of 92% (120.1 – 9.4 / 120.1) over the four year time span. The Accounts Receivable, during this same time, went from $90.6 in 2002 to $146.4 in 2005, an increase of 62% (90.6 – 146.4 / 90.6). Likewise, inventory has increased from $468.3 to $656.9, an increase of 40% (468.3 – 656.9 / 468.3). For accounts receivable (increase of 62%), inventory (increase of 40%), wages payable (increase 24%), other payables and purchases (increase of 75%) from 2002-2005. Other current assets and accounts payable were consistent at 20.9 and 5, respectively, from 2002 - 2005.
Description of the Problem
• Bob’s net income that he takes home in