...Case #9: HORNIMAN HORTICULTURE Synopsis and Objectives This case captures the problems concerning cash flow and working-capital management typical of small, growing businesses. At the end of 2005, Bob and Maggie Brown have completed their third year of operating Horniman Horticulture, a $1-million-revenue woody-shrub nursery in central Virginia. While experiencing booming demand and improving margins, the Browns are 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. It also provides a forum for instilling appreciation for the relevance of free cash flow to business owners and managers, introducing financial-ratio analysis, developing the concept of the cash cycle and working-capital management, and motivating the use of financial models. Questions 1. What is your assessment of the financial performance of Horniman Horticulture? 2. Do you agree with Maggie Brown’s accounts-payable policy? 3. What explains the erosion of the cash balance? 4. What do you expect the financial position of the business to be in 2006? Extend the financial statements through 2006, assuming that Bob Brown grows revenue by 30%. Note: To make the balance sheet balance, define cash as equal to (Curr. liab. + Net worth) – (Accounts receivable + Inventory + OCA + Net fixed assets). What are the alternatives for solving the business’s cash problem? The free-cash-flow calculation...
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...Case 11—Horniman Horticulture Overview: * Bob and his wife bought Horniman Hoticulture from his wife’s father in 2002 for $999,000 * Bob is proud of the nursery * 52 greenhouses * 40 acres of productive fields * Employed 12 full-time and 15 seasonal employees * Paid $8.51 which is the required rate; possible increase could harm margins * Sales were mostly to retail nurseries throughout the mid-Atlantic region * Over the past two years, the number of plant species grown has increased by more than 40% * They have noticed a increase in business from small nurseries * The cost of carrying inventory for these small companies was burdensome so Horniman has adjusted their credit terms and they have now seen substantial increase in sales * Bob Brown faced a tight money situation in December, 2005 * However, with tight money the business was booming * Revenue up 15% since 2004 * Operating profits up even more * Bob has been growing more mature plans which customers will pay premium prices for * Most inventory took 2-5 to mature so 2006 looks like it should be a banner year * Expected revenue hitting a record 30% growth * A possibility for long term growth opportunity with the expected closing of a neighboring 12-acre parcel of farmland Problems: * Cash is decreasing * Their operating target is 8% of annual revenue * They fell below $10,000 * Want...
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...becomes even more relevant when the company’s annual revenue growth – ranging from 2.9% in 2002 to 15.5% in 2005 – is compared to the industry benchmark of a 1.8% annual loss. This means that Horniman, unlike its competitors who have been posting a loss during the same period, has been able to reap robust economic benefits. In a nut shell, the company is booming while its rivals are shrinking. Efficiency and Productivity are up - Another good feature of the company is its ability to control the cost of goods sold over the years from spiraling upwards. Revenues from 2002 to 2005 grew 33% and Cost of goods sold grew 25%. The firm has been able increases its sales at a higher rate than the increase in expenses. This means that the firm is getting more efficient with its processes since the gap between sales and costs of goods sold is increasing. This is a sign of healthy business operations. Further, Horniman’s net profit has nearly doubled between 2002 and 2005 – soaring to $60,800 in 2005 from $32,600 in 2002. Profits are on the rise - Horniman’s gross profit has increased steadily, jumping from $385,600 in 2002 to $545,400 in 2005. Also because of efficiency, not only is Horniman producing more and selling more, it is able to capture larger margins. Profit margin for Horniman increased from 4.1% to 5.8% during 2002 to 2005. Concerns Erosion of cash - Horniman’s biggest problem is its inability to control cash flow. The firm’s cash has been slashed to $9...
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...Horniman Horticulture Overview Horniman Horticulture is a whole-sale nursery that has seen tremendous growth throughout the years. The nursery, which consists of shrubs, annuals, perennials, and trees, has increased by more than forty percent in just two years. With 52 greenhouses and 40 acres of field, business was growing for the Browns. The nursery saw an increase in the profit margins of 2.7% within the past two years. As 2006 seemed to be a favorable year for the Browns and their nursery, they continued to remain hopeful in the growth of their business. The Browns are concerned that future cash flows will not be sufficient in order to provide a sustainable growth. The firm’s cash levels fell under $10,000 which led to a serious concern for the business and its desired operating target of 8% of annual revenue. Maggie’s concern with the idea of becoming leveraged by debt is the possibility that the nursery will not generate enough profit to pay off the bank loans and interest. As a result, her strategy is to use the firm’s cash to pay off all inventory demand. Even with the decline in cash flow, Bob is optimistic that in 2006 their nursery will achieve a 30% growth rate. Based on 2005, revenue and operating profits were 15% ahead of 2004. It is probable that a 30% growth rate can be obtained within the upcoming year of 2006. Maggie seems to be well aware of the risks involved if she were to let the company walk down the path to becoming leveraged by...
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...Mahdi Ibrahim Case 6 brief September 28, 2014 Horniman Horticulture Horniman Horticulture has been successful while having cash flow complications between the years of 2002 and 2005. However, the company has shown improvement in 2004 and 2005 in revenue by a little over 12 percent. In 2005 it was about a 15 percent increase from 2004 and operating profits were up even higher. Bob and Maggie were even more optimistic for 2006 and had higher expectations after doing really the past two years. How much was the accounts payable policy a factor in the erosion of the cash balance? How were there a cash decline if the company was doing so well? Horniman Horitculture, a deep-rooted wholesale nursery business in Lynchburg, VA, was bought by Bob Brown for 999,000 from his father-in-law at the end of 2002. Bob and Maggie used the funds from their house they sold, loans from family members, and a grant for business development. The opportunity by acquiring the company to be closer to Maggie’s family interested both Bob and Maggie. The wholesale nursery business specializes in woody shrubs and other trees. The nursery’s operations filled 52 greenhouses and 40 acres of productive fields. Also, they employed 15 seasonal and 12 full-time employees. When it came to costs, Maggie held the turf and kept it tight. The profit margin increased from 3.1 percent in 2003 to an expected 5.8% in 2005. But are these growth rates sustainable? Bob think so and was feeling good about the future...
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...Bob and Maggie Brown bought Horniman Horticulture, a family-owned business, from Maggie’s parents in 2002 for $999,000. Bob runs the nursery’s operations and Maggie oversees the company’s finances. Contributing to the success, Bob had grew the number of plant species grown at the nursery by more than 40%. Their profit margin had increased to an expected 5.8% in 2005, and Bob was confident with the success the local economy was experiencing that a high demand would keep his business booming. Because much of his inventory took two to five years to reach maturity, his expansion efforts had been in the works for a while by 2005. He was optimistic that 2006 would be a banner year, expecting a 30% revenue growth rate. In addition, ensuring their long-term growth opportunities, he and Maggie were hoping to expand their business by closing on a neighboring 12-acre piece of farmland at the end of 2005. Problem: Although their profits were growing rapidly over their first few years, contrarily, the cash on hand has been decreasing to a point where it was less than their target level of 8% of annual revenue in 2005. What they ended up with was a liquidity problem, because most of their cash is tied up in inventory and accounts receivable. It seems apparent, too, that the unsustainable growth rate is realized as the cause for their depleting cash balance. Their impressive growth is attributed to their heavy asset investment in growing the size of their nursery, yet it has brought the firm’s...
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...In the case we are given the information that revenues are expected to increase by 30% and are asked to develop a forecast of the financial statements for 2006. I used this information to forecast out the revenues and all of the accounts for my balance sheet as well. For COGS and SG&A I used an average percentage, developed from the last four years data, of each divided by revenue. Depreciation was given in the footnotes on page 3 and for taxes I once again used an average of the tax for each year divided by operating profit for the 2006 Income statement projections. Some of the issues I see with using this method is that I did is that not all balance sheet accounts will increase proportionately with the revenue and so this creates a very unrealistic and unreliable projection of the balance sheet. I also projected the cash to increase by 30% as well, but the cash account has been decreasing rapidly since Bob and Maggie took over the business. The way they are doing things is working for now; in the future I think they will run into problems because they are not maintaining a large enough cash balance. They do not always receive cash from their sales within 10 days and so by paying all their bills within the 10 day time frame to take advantage of the discount, they are creating a shortage in cash and thus reducing the company’s liquidity. This also creates high cost of trade credit. To calculate the cost of trade credit I used the following formula Cost of Trade Credit = ((1...
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...Advanced Questions for Horniman Horticulture 3. In what strategic direction does Bob Brown appear to be moving? Horniman Horticulture (Horniman) revenue growth is increasing since 2003 it showing a rapid growth then the industry benchmark, which is decreasing by 1.8% per year. In 2004 and 2005 Horniman is constantly growing with increase in the revenue from 2.4% in 2003 to 12.5% in 2005 and 15.5% in 2005 as well as increase in total asset net profit and return on equity respectively, which indicate that it’s doing well within the industry. As we can see in exhibit 1 They have stabilized depreciation as its only rose 20% from 2003 to 2005 (38.4 to 40.9) . The same goes for tax expanse it hasn’t change much by staying around 34 to 34%. One of the Key strength of Bob Brown in regard to management is that he has a good relationship with the employee and customer. 4. Support your answer to question 3 by indicating what change in the allocation of resources the Browns need to make in order to support this strategy. Increasing the payable days or lowering the day’s receivable outstanding would reduce the cash conversion cycle. Although it is important to invest cash back into the company for growth, a more conservative approach of holding on to more cash would benefit Horniman in the future. 7. What is going right with this business? - Profitability Ratios: Constant growth from 2002-05, particularly year 2004 and 2005 with impressive growth in revenue with12.5% and 15.5% respectively...
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...compounded nominal and real average annual growth in Disney’s Total Revenue? Disney’s most recent fiscal year‐end is 9/30/2010. Disney’s sales revenue for 2010 (9/30/2010) was $38.063 billion. Use a OLS regression for all 5 years of the data to estimate the growth rate. Horniman Horticulture 3. What is your assessment of the financial performance of Horniman Horticulture? While the growth in net profit has been constant, the severe decrease in cash on hand seems to represent a problem. There are far too many accounts receivable and Horniman needs to collect these accounts to strengthen its position. The strong revenue growth and growth in the profit margin have been impressive though, 4. Do you agree with Maggie Brown’s accounts‐payable policy? For Horiman’s current financial position, I do agree with Maggie’s accounts payable policy of not debt financing. The small amount of cash currently on hand is not enough to support interest payments in the event that inventory did get wiped out by a cold snap. 5. What explains the erosion of the cash balance? The erosion of the cash balance can be explained by the expansion with a lack of borrowing, the cash on hand could be greater if Maggie allowed Horniman to debt finance. However, Maggie finances all the new purchases of land, equipment, etc to be done with equity. 6. What do you expect the financial position of the business to be in 2006? Extend the financial statements through 2006, assuming that Bob Brown grows...
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...plaques have changed and how these views are subsequently reflected in their presentation in museums, it might be helpful to consider the definition of art objects and how their interpretation can change when moved from one context to another. Understanding what we conceive as ‘art’ is an ever-changing abstract concept that requires knowledge of the contextual circumstances of its creation. In order to understand the implications in which the Benin bronzes are contextualised and how the display of these artefacts is approached from both anthropological and artistic view point I seek to examine the way in which the Benin Bronzes are interpreted. My evidence will be gathered using Nigerian historian Joseph Eboreime’s description of the Horniman Museums Africa collection and ethnographers Charles Read and Ormonde Daltons interpretation of the British Museums African Galleries using readings 2.6 and 2.7 of AA100 cultural encounters book 3 as well is referring to plates 3.2.22, 3.2.24, 3.2.25 and 3.2.26 of the AA100 illustration book. Regarded as some of the most important cultural symbols of the African continent, the Benin bronzes are highly acclaimed artefacts that have been subject to a great deal interest in the world of art history. Following the seizure of the Benin Bronzes by British forces, their arrival came at a time of increasing interest in Africa and growing British imperialism. At the time of their acquisition in the late 19th century, attitudes towards African...
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...I related to the character Kate O’Farrell in Secret Scribbled Notebooks by Joanne Horniman, as I too am at a transition point in my life thinking about big decisions for my future. The text is written as a diary in Kate’s perspective, which enabled me to develop a close relationship with Kate and really see inside her head. The novel made me reflect on my life and think about my own life journey. Kate was abandoned as a kid so was too young to remember her parents, because of this she has many hopes and dreams. She wrote a memory in the blue notebook “I gave him a present I’d found. It was a tiny stone, from the garden of the motel… He told me he would always keep it. That is why I always believe he will come back” Here you see her holding...
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...sufficient for your Case Briefs. Rather, the questions are to serve as a guide for your group discussion of the cases and a help to getting started on each case. Your final solution the case and recommendations should not necessarily be limited to the answers to these question or the assumptions in the case. FOR INDVIDUAL ASSIGNMENTS: For individual assignments, you must answer the questions labeled “Memo.” Individual Memo for Rapid Repair Auto Parts Rapid Repair’s profitability appears good but their cash balance has shrunk. Write a report that provides a financial analysis and summarizes their current situation (Hint: ratios and cash flow analysis). What changes do your recommend, if any, in 2013? Preparatory Questions for Horniman Horticulture Horniman’s profitability appears good but their cash balance has shrunk just like the previous case. Write a report that forecasts the financial outlook for 2006 (including forecasted income statement and balance sheet). How much external funds are needed (EFN), if any, for 2006? Preparatory Questions for Panera Bread Company 1. Complete the financing portion of Panera Bread Company’s 2007 forecast financial statements, and provide a forecast for the next 5 years. A worksheet has been provided for this purpose. As an initial (base case) analysis, assume all borrowings are some form of debt. You may also assume the share repurchase occurs in 2008 and that interest expense is equal to 6% of outstanding...
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...Dear Ms. Horniman, I am writing to strongly disagree with the sentiments expressed by Jeff Jacoby surrounding capital punishment detailed in a recent Guardian title. Specifically, I believe that the article, Execution saves innocents…, contains a number of biased information, as well as some of his arguments are ridiculous at times, making no sense at all. These arguments include the chance of error being very low in capital punishment, the deterrent effect and the innocent lives at stake. In this essay, I will justify my points and make clear meanings of these arguments. Firstly, I want to talk about the chance of error being low, in his article he states that “of the 875 people executed…not one of them has been retroactively proven innocent”. This clearly implies that the whole process is perfect when it comes to sentencing murderers to death, and not even one thing can go wrong in this. With all that perfection, it also gets us to a point that at the same time how accurate this is and also giving a think to the level of crime rate in the United States. However, I believe that there might be something wrong with this process of counting of the people who have an execution. What if out ‘of the 875 people executed’ 15 or even maybe 20% of them might have been innocent. Maybe they were only put in because someone might have put the blame on them. The chance of error being very low is a biased thought, as it is coming from Governor Mitt Romney himself. If some research had been...
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...Bombay:: Modern yet ancient || Glitzy yet heart-rendingly poor Let me tell you about my city. The city of Bombay originally consisted of seven islands, namely Colaba, Mazagaon, Old Woman's Island, Wadala, Mahim, Parel, and Matunga-Sion. This group of islands, formed part of the kingdom of King Ashoka, which have since been joined together by a series of reclamations. After his death, these islands passed into the hands of various Hindu rulers until 1343. In that year, the "Mohammedans" of Gujarat took possession and the Kings, of that province of India ruled for the next two centuries. The only vestige of their dominion over these islands that remains today is the mosque at Mahim. Who tore everything down? The Portuguese/British perhaps? Post partition anti-muslim mobs perhaps? In 1534 the Portuguese, who already possessed many important trading centers on the western coast, such as Panjim (Goa), Daman, and Diu, took Bombay by force of arms from the "Mohammedans". This led to the establishment of numerous churches which were constructed in areas where the majority of people were Roman Catholics. There used to be two areas in Bombay called "Portuguese Church". However, only one church with Portuguese-style facade still remains; it is the St. Andrew's church at Bandra. The Portuguese also fortified their possession by building forts at Sion, Mahim, Bandra, and Bassien which, although in disrepair, can still be seen. They named...
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...Study of Quick Service Restaurants in India Once an introvert, domestic home driven Indian population is now opening up to a culture of eating out. India is a young country with almost 60 percent of people in the age window of 18- 35 years which are also the most spending years, hence QSR. The first foreign Quick Service restaurant and casual dining entered Indian Market around 20 years ago. Although Quick Service Restaurants contributes to only 2-3% to India’s GDP, the market is worth INR 247,680 crore (USD 48 billion) and is expected to grow to INR 408,040 crore (USD 78 billion) by 2018. It comprises of food services that are organized such as full service casual and fine dining restaurants, hotels, bars and lounges, cafes and frozen dessert formats as well as unorganized sector such as Dhabas, street stalls, roadside vendors, food charts etc. The concept of QSR has gained prominence in India because of the affordable, competitive pricing and convenient quick service to the ever growing population. QSRs face few challenges in terms of Health and hygiene, beating local competition, monitoring multiple outlets in various cities, holding on to the customers as QSR customers are easy to sell to but also easy to lose, maintaining quality service, localization of menu and building a cost effective supply chain. Foreign QSRs have more 63% of the market shares but there are many Indian chains such as Haldiram’s, Faasos, Goli Vada Pav etc. that are flourishing in the market that is...
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