Horniman Horticulture Case Study Essay
Case Study 2: Financial Analysis and Forecasting
28/08/2014
Word Count 905
1.
Strengths and Weaknesses of Horniman Horticulture
Strengths:
- Business growth is positively increasing (Revenue increased 15% from 2004)
- Pay suppliers early which allows Horniman Horticulture to obtain a trade discount on purchases
- No bank loan, ability to avoid borrowing from the bank to fund business functions
Weaknesses:
- Margins heavily reliant on fixed expense prices (Wages and Interest rates)
- Decline in cash balance (Below $10,000)
2.
Free Cash Flow = Operating Cash Flow - Capital Expenditure - Net Working Capital. Operating Cash Flow = Operating Profit + Depreciation - Taxes = 100 + 40.9 – 39.2 = 101.7
Free Cash Flow = 101.7 – 4.5 – (786.3 …show more content…
Horniman Horticulture has a free cash flow amount of $0, which indicates that the firm is struggling to obtain a sufficient flow of cash and has an inability to retain cash. This is further exemplified by the fact that Horniman Horticulture has a cash cycle of 517 days, which inevitably depicts that it takes 517 days to convert resource inputs into cash flows.
3.
4.
Horniman Horticulture has adopted the philosophy that it is most effective to pay suppliers within a short amount of time to obtain trade discounts. The positive is the ability to obtain inventory at a discounted price, which ultimately increases margins and profits. However the weakness associated with this is that there will be a lack of cash at hand as the company is offloading cash on an average of 9.9 days.
5.
Business practices that could be implemented to solve the cash issue within Horniman Horticulture
28/08/2014
Word Count 905
1.
Strengths and Weaknesses of Horniman Horticulture
Strengths:
- Business growth is positively increasing (Revenue increased 15% from 2004)
- Pay suppliers early which allows Horniman Horticulture to obtain a trade discount on purchases
- No bank loan, ability to avoid borrowing from the bank to fund business functions
Weaknesses:
- Margins heavily reliant on fixed expense prices (Wages and Interest rates)
- Decline in cash balance (Below $10,000)
2.
Free Cash Flow = Operating Cash Flow - Capital Expenditure - Net Working Capital. Operating Cash Flow = Operating Profit + Depreciation - Taxes = 100 + 40.9 – 39.2 = 101.7
Free Cash Flow = 101.7 – 4.5 – (786.3 …show more content…
Horniman Horticulture has a free cash flow amount of $0, which indicates that the firm is struggling to obtain a sufficient flow of cash and has an inability to retain cash. This is further exemplified by the fact that Horniman Horticulture has a cash cycle of 517 days, which inevitably depicts that it takes 517 days to convert resource inputs into cash flows.
3.
4.
Horniman Horticulture has adopted the philosophy that it is most effective to pay suppliers within a short amount of time to obtain trade discounts. The positive is the ability to obtain inventory at a discounted price, which ultimately increases margins and profits. However the weakness associated with this is that there will be a lack of cash at hand as the company is offloading cash on an average of 9.9 days.
5.
Business practices that could be implemented to solve the cash issue within Horniman Horticulture