Ceres Gardening Project

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Name Tapan Gaur

Question 1

Ans: - Part 1A

Profit estimated for the year 2006E to the ‘cash flow from Operation’=226

Investing cash flow, majorly contributed to decrease in ‘Change in Cash’ by the company
from 2003 to 2006E.

Ans: - Part 1B

Trend in Cash Flow & Reason for the change in cash flow: -

Operating Cash Flow decreases rapidly from 2003 to 2006E as increase in net income &
increase in change in Acc. Receivables with increase in change in Acc. Payables.

Investing Cash Flow decreases from 2003 to 2006E as increase the investments in PP&E and
land also.

Financing Cash flow increases from 2003 to 2005 and decreases from 2005 to 2006E as
increase the issuance of debt with pay the retirement of debt & issuance of dividend decrease
firstly from 2002 to 2006E then increased.

Ans: - Part 1C
Question 2

Ans: - Part 2A

Operating working capital=Account Receivable+Inventory-Accounts payable

OPERATING WORKING CAPITAL (2002-2006E)


Year 2002 2003 2004 2005 2006E
O.W.C 4540 4227 5122 6917 8894

Ans: - Part 2B

RATIO OF OPERATING WORKING CAPITAL & SALES (2002-2006E)


Year 2002 2003 2004 2005 2006E
Ratio 18.42% 15.77% 17.49% 19.71% 20.88%

Ans: - Part 2C

DRIVERS OF WORKING CAPITALS (DIO, DSO & DPO)


Year 2002 2003 2004 2005 2006E
DIO 54.35 46.36 48.33 41.42 39.45
DSO 50.89 59.18 83.84 105.53 122.30
DPO 35.79 49.32 73.97 83.84 96.66

Ans: - Part 2D

Implication of the long credit period given to dealers, a larger investment in receivables
so it will impact the working capital of the ceres gardening limited.
Question 3

Question 3

Economic Balance sheet


At December 31 2002 2003 2004 2005 2006E
CAPITAL
EMPLOYED
Cash 705 1,542 1,818 2,158 1,955
Accounts
3,485 4,405 6,821 10,286 14,471
Receivable
Inventories 3,089 2,795 3,201 3,291 3,847
Accounts Payable -2,034 -2,973 -4,899 -6,660 -9,424
O.W.C 4,540 4,227 5,122 6,917 8,894
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 Capital
Employed 7,892 9,301 11,578 14,032 16,738
INVESTED CAPITAL
Current Portion of 315 352 525 730 649
Long-term Debt
Long-Term Debt 3,258 4,400 5,726 7,123 8,480
Net Debt 3,573 4,752 6,250 7,854 9,129
Cash -705 -1,542 -1,818 -2,158 -1,955
Shareholders
5,024 6,091 7,146 8,336 9,563
Equity
INVESTED CAPITAL 7,892 9,301 11,578 14,032 16,738
Question 4

Profitibility Ratios (Variable Margin, Operating Margin, RoE & RoACE)


Year 2002 2003 2004 2005 2006E
Variable Margin 17.00% 19.00% 18.60% 18.50% 17.60%
Operating Margin 18.42% 15.77% 17.49% 19.71% 20.88%
RoE 0.51 0.39 0.24 0.20 0.15
RoACE

RoE is rapidly decreases from 2002 to 2006E. Reason behind the decrease in RoE, due to
increase in Shareholder’s equity.

RoACE

Question 5

Pros: - Strong relationship with existing suppliers, High Margin to its compititers.

Cons: - Non efficient inventory management, Low return on investment

As per Balance sheet, Cash flows & income Statement with Pros & cons, I have
recommended not to continuing this program.

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