Name RISHABH JHAJHARIA
Question 1
Part A:
company’s profits have increased by ~30% from 2002 to 2006(E).
Derived Statement of Cash Flows (in $ thousand, some numbers are
rounded)
For Years Ending December 31 2003 2004 2005 2006E
Net Income 1,293 1,279 1,488 1,534
Depreciation & Amortization 412 455 557 669
Change in Accounts Receivable -920 -2,416 -3,465 -4,185
Change in Inventories 294 -406 -90 -556
Change in Accounts Payable 939 1,926 1,761 2,765
Operating Cash Flow 2,019 838 250 226
Investment in PP&E -835 -734 -1,215 -1,398
Investment in Other Assets 0 0 0 0
Investment in Land -1,300 -1,103 0 0
-
Investing Cash Flow 2,135 -1,836 -1,215 -1,398
Debt Issuance 1,494 1,850 2,128 2,006
Retirement of Debt -315 -352 -525 -730
Dividends -226 -224 -298 -307
Financing Cash Flow 953 1,274 1,306 969
Total generated cash 837 276 340 -203
1. Here we can see total income of all year which translate to 'cash flow from
operations' for 2006 is $226 thousand.
(in $ thousand, some numbers are rounded)
For Years Ending December
31 2003 2004 2005 2006E
Operating Cash Flow 2,019 838 250 226
Investing Cash Flow -2,135 -1,836 -1,215 -1,398
Financing Cash Flow 953 1,274 1,306 969
Change in Cash 837 276 340 -203
There are three categories in cash flow COF, CIC and CFC .
2. Due to Investing cash flow our investment is higher in 2006 so our cash
decreases majorly. As we can see there change in cash flow every year in
positive but in 2006 change in cash is negative. In 2006 Investment is higher
and cash generated through finance and operation is less. Cash outflow
through finance is 6584 which is higher than cash in flow through finance
and operation.
Part B:
Derived Statement of Cash Flows (in $ thousand, some numbers are rounded)
For Years Ending December 31 2003 2004 2005 2006E
Net Income 1,293 1,279 1,488 1,534
Depreciation & Amortization 412 455 557 669
Change in Accounts Receivable -920 -2,416 -3,465 -4,185
Change in Inventories 294 -406 -90 -556
Change in Accounts Payable 939 1,926 1,761 2,765
Operating Cash Flow 2,019 838 250 226
Investment in PP&E -835 -734 -1,215 -1,398
Investment in Other Assets 0 0 0 0
Investment in Land -1,300 -1,103 0 0
Investing Cash Flow -2,135 -1,836 -1,215 -1,398
Debt Issuance 1,494 1,850 2,128 2,006
Retirement of Debt -315 -352 -525 -730
Dividends -226 -224 -298 -307
Financing Cash Flow 953 1,274 1,306 969
1. Operations activities: -
If we look into tread over all year. As we can see there change in trend in operation
significantly. In 2003 to 2006 the cash flow decreases from 2,019 to 226. Operation
generates less cash compared to previous years.
Reason :- As we can see in operation cash flow the major reason is cash receivable is
less. We can see it increases every year which leads to less cash generates in operation.
2. Investing activities: -
On other hand if we look into investing activities every year it is decreasing but from
2005 to 2006 it was increasing.
Reason :-The major reason behind the change is investment in PP&E is increasing in
2005 and 2006 compare to 2003.
3. Finance activities: -
In finance activity cash-flow increase from 2003 to 2005 then decrease in 2005 to
2006.
Reason: -The major reason is debt issuance is increasing every year because company
raising their funds for Get ceres program.
Part C:
1. Self-financing:
CFO>CFI+CFF
CFO-cash flow operation
CFI- cash flow
investment CFF-cash
flow finance
Cash generate through operation in 2006=226
Cash investment in asset in 2006=-1398
Cash finance in 2006=969
-1,398+969=-429
Here -429<226
As we can see the cash generates from operation is very less so company not able to
self-finance.
2. Funding of investment:
Cash generate through operation in 2006=226
Cash investment in asset in 2006=-1398
Cash finance in 2006=969
Funding in investment=CFO+CFF
as we can see the funding in investment is combination of cash generates from
operation and finance. In cash flow statement we can observe cash generates from
operation is less and company is relying more on debt.
3. Cash position:
Firstly, if we investigate cash generated through operation $226 thousand which
is very low. Cash is used by company which is generated by finance of company. As we
can see cash generated through debt is $2,006 thousand which are using to repay
and dividend.
Secondly, in investment company investing more in PP&E assets which are higher
compared to previous years. So, if we look into liquidity which is less, and Debt-to-
assets ratio is high.
Question 2.
Part A:
Operating working capital=inventories + accounts receivable - account payable
(in $ thousand, some numbers are rounded
Operating working capital
At December 31 2002 2003 2004 2005 2006E
Inventories 3,089 2,795 3,201 3,291 3,847
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
(-Accounts Payable) -2,034 -2,973 -4,899 -6,660 -9,424
Operating working capital 4,540 4,227 5,123 6,917 8,894
Part B:
Operating Working Capital Ratio = Operating working capital/ Sales
(in $ thousand, some numbers are rounded)
At December 31 2002 2003 2004 2005 2006E
Operating working capital 4,540 4,227 5,123 6,917 8,894
Sales 24,652 26,797 29,289 35,088 42,597
0.1842 0.1577 0.1749 0.19713 0.20879
Operating Working
Capital Ratio 18.41% 15.77% 17.49% 19.71% 20.87%
Part C:
DSO = Accounts receivables/Sales revenue per day, Sales revenue per = Sales revenue/360
(in $ thousand, some numbers are rounded)
At December 31 2002 2003 2004 2005 2006E
Sales 24,652 26,797 29,289 35,088 42,597
Sales revenue per day
=Sales/360 68.478 74.436 81.358 97.4667 118.325
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
DSO=Accounts receivables/Sa
les revenue per day 50.892 59.178 83.839 105.534 122.299
DPO=Accounts Payables/Cost of goods sold per day, Cost of goods sold per day
= Cost of goods sold/360
(in $ thousand, some numbers are rounded)
At December 31 2002 2003 2004 2005 2006E
Cost of Goods Sold 20,461 21,706 23,841 28,597 35,100
Cost of goods sold per day
= Cost of goods sold/360 56.836 60.294 66.225 79.4361 97.5
Accounts Payable 2,034 2,973 4,899 6,660 9,424
DPO=Accounts Payables/Co 96.656
st of goods sold per day 35.787 49.308 73.975 83.841
(DIO) = Inventory/Cost of goods sold per day
(in $ thousand, some numbers are rounded)
At December 31 2002 2003 2004 2005 2006E
Inventories 3,089 2,795 3,201 3,291 3,847
Cost of goods sold per day
= Cost of goods sold/360 56.836 60.294 66.225 79.4361 97.5
DIO=Inventory/Cost of goods sold
per day 54.349 46.356 48.335 41.4295 39.4564
Part D
When we analysis the long credit period of company there we can see requirement of working
capital is increased. Collection period- HIGH increase due to the relaxed credit policies of Get
Ceres. Because our cash receivables are differ, we recovered our cash later. Which directly
impact on our liquidity or cash flow as we can see our liquidity decreasing every year. In 2003
it was $837 thousand and in 2006 it was decreasing and our liquidity was -$203.
Question 3
Part A:-
At December 31 2002 2003 2004 2005 2006E
Inventories 3,089 2,795 3,201 3,291 3,847
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
-
(-Accounts Payable) -2,034 -4,899 -6,660 -9,424
2,973
Operating working capital 4,540 4,227 5,123 6,917 8,894
Plant, Property, &
2,257 2,680 2,958 3,617 4,347
Equipment (net)
Land 450 1,750 2,853 2,853 2,853
Other Assets 645 645 645 645 645
11,57
Capital Employed 7892 9,301 14,031 16,739
9
Invested Capital
At December 31 2002 2003 2004 2005 2006E
Current Portion of Long-
315 352 525 730 649
term Debt
Long-Term Debt 3,258 4,400 5,726 7,123 8,480
Shareholders Equity 5,024 6,091 7,146 8,336 9,563
-
(-Cash) -705 -1,818 -2,158 -1,955
1,542
11,57
Invested capital 7,892 9,301 14,031 16,739
9
Question 4
Part A :-.
Variable Margin= (Sales revenue - cost of goods sold) / Sales
(in $ thousand, some numbers are rounded)
At December 31 2002 2003 2004 2005 2006E
Sales 24,652 26,797 29,289 35,088 42,597
Cost of Goods Sold 20,461 21,706 23,841 28,597 35,100
Sales-COGS 4,191 5,091 5,448 6,491 7,497
0.1849
Variable Margin 0.17 0.19 0.186 9 0.176
variable 18.50 17.60
Margin(percentage) 17% 19% 18.60% % %
Operating Margin= EBIT/sales
At December 31 2002 2003 2004 2005 2006E
EBIT or Operating
1,641 2,338 2,408 2,836 3,018
income
Sales 24,652 26,797 29,289 35,088 42,597
Operating 0.0808
0.0666 0.0872 0.0822 0.07085
Margin=EBIT/sales 3
Operating
06.6% 8.72% 8.22% 8.08% 7.09%
Margin(percentage)
ROE=Net profit / Owners' equity
At December 31 2002 2003 2004 2005 2006E
Net Income 1,191 1,293 1,279 1,488 1,534
Shareholders Equity 5,024 6,091 7,146 8,336 9,563
ROE 0.2371 0.2123 0.179 0.1785 0.1604
percentage 23.71% 21.23% 17.90% 17.85% 16.04%
Return on Average Capital Employed = Earnings after taxes before interest /
{(Opening capital employed + Closing capital employed)/2} in $ thousand, some
numbers are rounded)
At December 31 2002 2003 2004 2005 2006E
Earnings before Interest
1,641 2,338 2,408 2,836 3,018
&Taxes(EBIT)
Earnings before
1,454 1,989 1,968 2,289 2,360
Taxes(EBT)
Taxes 264 696 689 801 826
(tax/EBT)*100= Tax 18.156808 35.0101 34.9934
34.992 35
percentage 8 63 5
1343.0467 1564.95 1843.58
EBIT(1-Taxes) 1519.9 1961.7
68 53 6
capital Employee 8282 10491 12872 15459 18043
O. capital employed +
C. capital 8282 9386.5 11681.5 14165.5 16751
employed)/2
0.1621645 0.13396 0.13014
ROACE 0.1619 0.11711
46 87 6
in percentage 16.22% 16.2% 13.4% 13.01% 11.71%
Part B:
ROE – Decreased
Turnover from 23%
while Leverage to increasing.
was 16% due toCeres
the decline in Profit
is relying Margins
more and moreand
on debt to
finance activities.
Drivers for ROE
ROCE- operating margin decreases however capital employed is increasing
Financial leverage-Because our debt is increasing so our financial leverage also
increases
Interest expense- Increases as company is relying more on debt. Debt-to-equity –
Increases as debt becomes more expensive so interest is high.
Tax-Because sale is high, so taxes also increase from $264-826 (thousand).
Part C:
As we can see in our calculation ROACE decreasing from 16% to 11%. Due to
change in EBIT and average capital employed.
There are two drivers define our ROACE
1. Optical Margin- If we evaluate company optical margin from 2002-2005
it’s increasing but in 2006 it starts decline. When company sale is increasing
then operating income is also increasing .
2. Capital Employed- In company the change in Capital Employed significantly.
As we can see it increases $8282 -$18043 (thousand).
Question 5
Write your answer for Part A here.
Advantages:
1: Strong growth in sales: Company is growing too fast. Based on 2005 we should be
targeting 12% growth rate. Company growth is at 25%.
2. Company Reputation: Ceres is competitively positioned in an expanding industry.
Disadvantage:
1.The company is not generating enough business from operating activities and is in
debt financing. As a result of GetCeres, AGE, Inventory and AP have increased
significantly more than sales, resulting in a lack of cash.
2 Debt-to-assets ratios is Increases as company is relying more on debt. And Debt-
to-equity ratio Increases as debt becomes more expensive
Firstly, I will recommend continuing the Get ceres program with some changes. In
that program we need to decrease credit terms from 120 to 90 days. It will help to
account receivable and company will be able to generate more cash. And it also
helps to decrease in working capital.
Secondly, GetCeres program help us to expanding in our business and in future
company will captured the half of market which helps to increase in shares.
