Teletech Corporation, 2005
FENGYUAN LIU 15929173
TAO WANG 16348171
XU HAN 15930331
1. What is going right with this business?
Based on analysis in EXHIBIT1&2, the revenue of Horniman Horticulture grows steady and strong. Revenue growth ratio rose from2.9% in 2002 to 15.5% in 2005, which was much higher than the benchmark. Gross profit in 2005 was $545,400 which was much higher than $470,500 in 2004. In 2005, the return on assets was 5.1%, which was nearly twice higher than benchmark. The return on capital was 5.4%, which was 1.4% higher compared with the benchmark. In the balance sheet, cash amount declined dramatically from $120,100 in 2002 to $9,400 in 2004. Nevertheless, the amount of account receivable rose from $90,600 to $146,400, which means the financial risk of account receivable has risen. The amount of current liabilities has risen from $35,900 in 2002 to $47,300 in 2005, even though accounts payable was reducing. Overall, Horniman Horticulture is a profitable company, but the company was not in a proper condition. What concerns you?
First of all, over the past two years, the number of plant species grown at the nursery increased too fast, the business were developed fast as well. Consequently, the proportion of the non-current assets was too large, which will result in short of liquid assets. As a business, it requires sufficient liquid assets to maintain routine operations and management, the poor condition of current assets may bring the consideration of going concern problem. This problem raised doubt about their abilities to continue operating in the future.
Secondly, the significant rise in account receivable would bring financial risks of the company’s profit or cash flow, the company was suffering high risks from lack of working capital. As Mike Periu, the Principal of EcoFin Media said, the risks occurred when particular customers can not pay what they owed to the company, which will generate unexpected losses to the company. The impacts
TAO WANG 16348171
XU HAN 15930331
1. What is going right with this business?
Based on analysis in EXHIBIT1&2, the revenue of Horniman Horticulture grows steady and strong. Revenue growth ratio rose from2.9% in 2002 to 15.5% in 2005, which was much higher than the benchmark. Gross profit in 2005 was $545,400 which was much higher than $470,500 in 2004. In 2005, the return on assets was 5.1%, which was nearly twice higher than benchmark. The return on capital was 5.4%, which was 1.4% higher compared with the benchmark. In the balance sheet, cash amount declined dramatically from $120,100 in 2002 to $9,400 in 2004. Nevertheless, the amount of account receivable rose from $90,600 to $146,400, which means the financial risk of account receivable has risen. The amount of current liabilities has risen from $35,900 in 2002 to $47,300 in 2005, even though accounts payable was reducing. Overall, Horniman Horticulture is a profitable company, but the company was not in a proper condition. What concerns you?
First of all, over the past two years, the number of plant species grown at the nursery increased too fast, the business were developed fast as well. Consequently, the proportion of the non-current assets was too large, which will result in short of liquid assets. As a business, it requires sufficient liquid assets to maintain routine operations and management, the poor condition of current assets may bring the consideration of going concern problem. This problem raised doubt about their abilities to continue operating in the future.
Secondly, the significant rise in account receivable would bring financial risks of the company’s profit or cash flow, the company was suffering high risks from lack of working capital. As Mike Periu, the Principal of EcoFin Media said, the risks occurred when particular customers can not pay what they owed to the company, which will generate unexpected losses to the company. The impacts