...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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...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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...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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...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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...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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...Seed certification for horticultural crops: Present policy and future needs Introduction Seed is the basic input for agricultural crop production and the effectiveness of other inputs like fertilizer, irrigation etc. depends on seed quality. The production can be increased to about 20% using quality seed itself. Horticulture crops are playing significant role in nutritional improvement, food and financial security of the people of Bangladesh. In the recent years, the country has attained self sufficiency in cereal crops. But production of horticultural crops like vegetables, spices and fruits is much below the required quantity. The area and production of vegetables and spices are shown in Fig. 1 & 2 and Table 1. Seed certification is a legally sanctioned system of quality control of seeds to be placed for sale. It is the process designed to maintain and make available to the general public continuous supply of high quality seeds and propagating materials of crops to ensure the genetic, physical, physiological and health status. Seed Certification Agency is the only authorized body for certification and quality monitoring of seeds of any kinds or varieties. In Bangladesh existing legislations for quality control of seeds are: a) the Seeds Ordinance, 1977 b) the Seeds (Amendment) Act, 1997 c) the Seeds (Amendment) Act, 2005 d) the Seed Rules, 1998 e) the Nursery Guidelines, 2008 and f) decisions from the National Seed Board (NSB). The...
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...The main industry players in the Kenya cut flower trade The main industry players in the Kenya cut flower trade include: Horticultural Crop Development Authority (HCDA), Kenya Plant Health Inspectorate Services (KEPHIS), Kenya Flower Council (KFC), National Environmental Management Authority (NEMA) and Fresh Produce Exporters Association of Kenya (FPEAK). Horticultural Crop Development Authority (HCDA) is the Government’s regulatory agency for the horticultural sub-sector. Its mandate is to regulate the horticulture industry through licensing and application of rules as prescribed under the Agriculture Act, Cap 318. HCDA also provides advisory and marketing services to the stakeholders in the industry for planning purposes. Kenya Plant Health Inspectorate Service (KEPHIS) is a State Corporation in the Ministry of Agriculture mandated to assure the quality of agricultural inputs and produce to promote sustainable agriculture and economic growth. KEPHIS coordinates all matters relating to crop pests and disease control, advises the Director of Agriculture on appropriate seeds and planting materials for export and import. Kenya Flower Council (KFC) is a voluntary association of independent growers and exporters of cut-flowers and ornamentals. It was formed in 1996 with the aim of fostering responsible and safe production of cut flowers with due consideration of workers welfare and protection of the environment. KFC also has a code of regulations to be observed by flower farms. The...
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...INSTRUCTIONAL SHEET FOR STUDENTS PROPAGATION BY AIR-LAYERING OBJECTIVES Students should be able to: ❖ Demonstrated the steps involved in Air-layering propagation. ❖ Explain the reason for using rooting hormone and scraping of cambium layer on stem. NOTES PROPAGATION BY AIR LAYERING Air layering or marcotting is a form of asexual plant propagation. This is a form of propagation that involves the use of plant parts, other than seeds to produce new plants. The process of Air-layering involves a system whereby new plants are formed on a stem while still being attached to the parent plant. SAFETY WARNING 1. Care should be taken when using the budding knife so as not to cause injury to oneself or others. 2. Gloves should be worn at all times to insure that rooting hormone does not come into contact with skin. MATERIALS AND EQUIPMENT NEEDED: 1. Plants to layer 2. Rooting hormone 3. Secateurs 4. Sharp sterilized budding knife 5. Damp cocoa moss 6. Clear plastic wrap 7. String 8. Brush 9. Latex gloves. STEP INVOLVED IN THE PROCESS OF AIR-LAYERING 1. Select a branch from a healthy plant. Stems of pencil size thickness or larger are best and remove any leaves that are present. 2. The chosen stem is girdled i.e. using a sharp budding knife two circular cuts are made on the stem at 3c.m. apart. 3. A third cut...
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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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...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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...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 debt...
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...Note:The information contained in the list is derived from e-records available in the MCA portal. If any discrepancy/ deviation is noticed by company/ representative of company, the same may be kindly brought to the notice of ministry for rectification. LIST OF SECTION25 COMPANIES S.No. CIN COMPANY NAME GUJARAT URBAN HOUSING COMPANY K K PATEL FOUNDATION ENAR FOUNDATION RESEARCH CENTRE PARYAVARAN EDUTECH HAZIRA AREA INDUSTRIES ASSOCIATION 1 U99999GJ1966NPL001408 2 U74999GJ1986NPL009017 3 U73100GJ1992NPL017317 4 U80903GJ1993NPL020139 5 U91110GJ1993NPL020141 DATE OF REGISTERED OFFICE ADDRESS INCORPORATION 8/17/1966 BHAILAL AMIN MARG VADODARA Gujarat 390003 9/26/1986 BARODA Gujarat 3/17/1992 GYAN MANDIR NH NO 8DHARAGIRI KABILPORE NAVSARI Gujarat 9/7/1993 CENTRE FOR ENVIRONMENT-EDUCATION NFD CAMPUS THALTEJ TEKRA AHMEDABAD- Gujarat 380054 9/7/1993 801,SURYAKIRAN APARTMENT,NEAR SANT XAVIAR SCHOOL, GHOD DOD ROAD,SURAT SURAT Gujarat 395007 11/24/1993 H.N-1099, GROUND FLOOR SECTOR-27. GANDHINAGAR Gujarat 382027 1/25/1994 AVDESH HOUSE , 3RD FLOOR PRITAM NAGAR , ELLISBRIDGE AHMEDABAD Gujarat 380006 8/2/1994 14-A, PUNIT PARK, SHAHIBAUG AHMEDABAD Gujarat 380004 10/19/1995 512 / 515 G I D CPHASE I NARODA AHMEDABAD Gujarat 382330 1/31/1996 CORE HOUSE OFF C G ROADPARIMAL GARDEN ELLISBRIDGE AHMEDABAD Gujarat 380006 12/9/1996 "PARITOSH" USMANPURA AHMEDABAD Gujarat 380013 6/10/1998 GUJARAT AGRICULTURAL UNIVERSITY CAMPUS ANAND DIST KHEDA Gujarat 4/23/1999 402 SHIKHAR BUILDINGNR MOUNT CARMEL RLY...
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