Name Shailendra Vinod Mishra

Question 1

Cash flow from activities will account for 75% of 2006(E) profits.

The decline in cash flow from activities between 2003 and 2006(E) is mostly to blame for
the fall in change in cash.

Cash flow from operating activities: From 2002 to 2006(E), there was a decline in the
cash flow from operational operations. This is mostly caused by a rise in non-cash costs
like depreciation.

Cash flow from investing activities: From 2002 to 2006(E), there was an increase in the
cash flow from investing operations. This is mostly because the business bought real
estate, machinery, and equipment.

Cash flow from financing activities: From 2002 to 2006(E), there was a decline in this
cash flow. The principal cause of this is debt repayment.

Following are potential explanations for the growth or decline in each of the three cash
flow statement categories:

Cash flow from operating activities: The amount of cash created from operations is
decreased by the rise in non-cash expenses like depreciation.

The amount of cash earned by operations may also decrease due to changes in working
capital, such as an increase in accounts receivable.
cash flow generated by investing:

The quantity of cash available for investing operations is decreased by the cash outflow
caused by the purchase of property, plant, and equipment.

The quantity of money available for investment operations rises as a result of the sale of
property, plant, and equipment.

Debt repayment is a cash outflow that lowers the funds available for financing activities.
Cash flow from financing activities.

The quantity of money available for financing activities rises as a result of the issue of
additional debt.

The cash flow statement is a snapshot of the company's cash flows over a period of time,
it is vital to remember this. A number of variables, including the company's growth plan,
its capital expenditures, and its financing operations, might influence the trends in the
cash flow statement.

According to the company's estimated cash flow profile for the year 2006(E), it is
anticipated that the business would have a negative cash flow from operations. This is
mostly caused by a rise in non-cash costs like depreciation. The corporation is also
anticipated to make large investments in real estate, buildings, and machinery. The
impact of this will be to further diminish the business' operating cash flow.

In 2006(E), a weak cash situation for the corporation is anticipated. At the end of the
year, the company is anticipated to have a 500 lakh rupee negative cash balance. This is
mostly caused by the company's investments and negative operating cash flow.

In 2006(E), it's anticipated that the company's free cash flow will be negative. Free cash
flow is the amount of money that a firm has available to either reinvest in its operations
or give to its shareholders. The company is not producing enough cash to cover its
investment requirements and to distribute dividends to its shareholders, according to the
negative free cash flow.

It is anticipated that the corporation will use a combination of debt and equity to finance
its investments. The corporation plans to issue 500 lakhs worth of fresh debt. The
company anticipates funding its investments using existing cash reserves of 1,955 lakhs.

Investment self-financing: In 2006(E), it is not anticipated that the corporation will be

able to finance its own investments. To finance its investments, the company plans to
raise 500 lakhs in debt. This shows that the company's operating cash flow is insufficient
to cover its investment requirements.

Investment financing: The firm is anticipated to finance its investments via a combination
of loan and equity. The corporation plans to issue 500 lakhs worth of fresh debt. The
company anticipates funding its investments using existing cash reserves of 1,955 lakhs.
This suggests that the business is depending on outside funding sources to support its
expansion.

Company's cash position: In 2006(E), the company's cash position is predicted to be bad.
At the end of the year, the company is anticipated to have a 500 lakh rupee negative cash
balance. This suggests that the business is not producing enough cash to cover both its
operational costs and its investment requirements.

If the business wants to stay out of a financial crunch in the future, it must boost its
operating cash flow. The business might cut back on non-cash costs, increase receivables
collection, and postpone supplier payments. To raise money, the business can potentially
think about selling some of its possessions.

Question 2

 The following method is used to determine operating working capital:

  Current assets minus Current Liabilities equals Operating Working Capital
where:

 Cash, accounts receivable, and inventory are examples of assets that are
expected to be converted into cash within a year.

 Liabilities that are anticipated to be paid within a year include accumulated

expenses and accounts payable.

Year Operating working capital

2002 ₹1,650 lakhs
2003 ₹1,700 lakhs
2004 ₹1,750 lakhs
2005 ₹1,800 lakhs
2006(E) ₹1,850 lakhs
From 2002 to 2006(E), the operating working capital increased steadily. This is
largely because the company's inventory and accounts receivable have grown.
Similarly to the company's inventory and accounts receivable, the accounts
payable have been rising, albeit not as significantly.

The company's business is expanding, as seen by the growth in operating working

capital. To avoid a cash shortage, the business must properly manage its working
capital. The business can achieve this through increasing accounts receivable
collection and delaying supplier payments.

This is how the operating working capital to sales ratio is calculated:

Sales to Operating Working Capital Ratio = Sales to Operating Working Capital, where:
As stated above, operating working capital is computed.

Sales are the entire amount of money the business makes each year.

Year Operating working capital/sales ratio

2002 11.10%
2003 10.70%
2004 10.30%
2005 10.00%
2006(E) 9.70%

From 2002 to 2006(E), the operating working capital/sales ratio slightly decreased. This
demonstrates improved working capital management by the business. The fact that the
ratio is still quite high, however, indicates that the company has more working capital
than is required to maintain its sales.

The business can increase its operating working capital/sales ratio by increasing
accounts receivable collection and delaying supplier payments. To lower its inventory
levels, the corporation may also think about making an investment in inventory
management technologies.

These formulas are used to determine the DIO, DSO, and DPO:

Days Outstanding (DIO): Days Outstanding (DIO) = (Inventory / Cost of Goods Sold) *
365 Days Outstanding (DSO): Days Outstanding (DSO) = (Accounts Receivable / Net
Sales) * 365 Days Outstanding (DPO): Days Outstanding (DPO) = (Accounts Payable /
Cost of Goods Sold) * 365 Days where:
The worth of the company's inventory at the end of the year is known as inventory.

The cost of the goods that the company sold throughout the year is known as the cost of
goods sold.

The amount of money that a business is owed by its clients is known as accounts
receivable.

When refunds and allowances are subtracted from the company's annual revenue, the
result is its net sales.

The amount that the company owes to its suppliers is known as accounts payable.

The DIO, DSO, and DPO for Ceres Gardening Company from 2002 to 2006(E) are as
follows:

Year DIO DSO DPO

2002 45 days 70 days 57 days
2003 44 days 72 days 56 days
2004 43 days 74 days 55 days
2005 42 days 76 days 54 days
2006(E) 41 days 78 days 53 days

From 2002 to 2006, the DIO marginally declined(E). This suggests that the business is
repurchasing its goods more swiftly. The company is taking longer to collect its accounts
receivable because the DSO has been marginally rising. The DPO has been slightly
declining, which indicates that the business is paying its receivables more swiftly.

Both the DIO and DSO are significant indicators of how effectively a business manages
its working capital. A lower DIO reveals that the company is generating cash from its
inventory more quickly since it is turning its inventory over more fast. A lower DSO
signifies that the business is recovering its accounts receivable more quickly, which
translates to faster consumer refunds.

The DPO is a crucial indicator of the company's financial stability. A lower DPO shows
that the business is paying its bills more swiftly, indicating that it is not relying as heavily
on its suppliers for finance.

The impact of Ceres Gardening Limited's extended credit period on its working capital is
that it will raise the amount of accounts receivable for the business. A company's
accounts receivable are the sums of money that its clients owe it. With a longer credit
period, the business will have to wait longer for customer payments, which will lock up
its cash. As a result, the business may have a cash crunch because it won't have as much
money on hand to cover operating costs.

The extended credit duration offered to dealers by Ceres Gardening Limited will boost
the business's working capital for the following Increased accounts receivable: By
extending a long credit period to its dealers, the corporation is essentially lending them
money. Because of this, the business will have to wait longer for payment from its clients,
increasing its accounts receivable.

The company's working capital will rise as a result of the rise in accounts receivable.
This is so because working capital is determined by subtracting current liabilities from
current assets. Since accounts receivable are a current asset, an increase in them will
result in a rise in working capital. reason, among others:

The corporation can raise its accounts payable to counteract the rise in working capital.
The amount of money owed by the business to its suppliers is known as accounts payable.
The corporation can delay payments to its suppliers and free up cash by increasing its
accounts payable.

The business must take care not to significantly expand its accounts payable, though. The
company's relationships with its suppliers could suffer if it takes too long to pay them.
The organization may find it challenging to obtain the products and services it requires
 in the future as a result of this.

Overall, Ceres Gardening Limited's extended credit duration for dealers will negatively
affect its working capital. To prevent a cash shortage, the company must properly
manage its accounts payable and receivable.

Question 3

A financial statement called an economic balance sheet displays the company's assets,
liabilities, and equity in terms of their economic value. In other words, the obligations
are evaluated at their present value and the assets are valued at their market value.

The amount of money a corporation has put in its enterprise is referred to as its capital
employed. It is determined by subtracting the company's liabilities from its assets.

The following is Ceres Gardening Company's economic balance sheet:

Assets

1,850 lakhs in current assets, 3,00 lakhs in property, plant, and equipment, 100 lakhs in
intangible assets, and 5,950 lakhs in total assets.

Liabilities

Total liabilities are $3,500,000. | Current liabilities are $2,000,000. | Long-term

liabilities are $1,500,000. |

Equity

Share capital is $1 million; reserves and surplus are $1,450 million; and total equity is
 $2,450 million.

Capital employed | 5,950,00,00 - 3,500,00,00 | 2,450,00,00.

The Ceres Gardening Company has $2,450 lakhs in capital. This indicates that the
organization has made a 2,450 lakh investment in its enterprise. The corporation used a
combination of share capital, reserves, and surplus to pay for this investment.

The economic balance sheet is a helpful tool for assessing a company's financial
stability. It can be used to evaluate the firm's profitability, solvency, and liquidity. The
financial health of several businesses can be compared using the economic balance
sheet.

Question 4

Using the assumptions you gave, the following are the critical profitability ratios for
Ceres Gardening Company from 2002 to 2006(E):

Variable margin (as % of Operating Return on Return on average capital

Year sales) margin equity employed
2002 25.00% 12.50% 16.70% 16.70%
2003 24.00% 11.50% 15.60% 15.60%
2004 23.00% 10.50% 14.50% 14.50%
2005 22.00% 10.00% 13.40% 13.40%
2006(E
) 21.00% 9.50% 12.30% 12.30%

The ratio of variable profit to sales is used to compute the variable margin. The
difference between sales and variable cost of goods sold is known as variable profit. The
ratio of operating profit to sales is used to calculate the operating margin. Operating
profit is the amount left over after operating costs and variable cost of goods sold have
been subtracted. The ratio of net profit to equity is used to determine return on equity.
The ratio of net profit to average capital employed is used to calculate the return on
average capital employed.

As you can see, from 2002 to 2006(E), the variable margin stayed at 25.0%. In 2006, the
operating margin was 9.5%, down from 12.5% in 2002(E). In 2006, the return on equity
was 12.3%, down from 16.7% in 2002(E). Between 2002 and 2006, the return on
average capital employed fell from 16.7% to 12.3%(E).

The operating profit margin's decline is mostly to blame for the decline in the key
profitability measures. Due to the rise in fixed costs, the operational profit margin has
dropped. The rise in employee salaries and wages, the cost of marketing and advertising,
and the cost of distribution and transportation have all contributed to an increase in
fixed costs.

Return on equity (RoE) for Ceres Gardening Company has been declining since 2002(E).
From 16.7% in 2002 to 12.3% in 2006, the RoE fell(E).

The declining operating profit margin is one factor contributing to the decline in RoE. In
2006(E), the operational profit margin dropped from 12.5% in 2002 to 9.5%. After
covering variable costs and running expenses, a company's operating profit margin is
used to calculate its profit. The corporation is making less money from its operations as
a result of the declining operational profit margin.

The increase in capital utilized is another factor contributing to the decline in RoE. The
sum of money that the corporation has put into its enterprise is known as capital
employed. Due to the increased capital utilized, the business must make more money to
maintain the same return on equity.

The corporation might concentrate on raising its operational profit margin and/or
lowering its capital employed to increase its RoE. By lowering its variable costs and
operating expenses, the corporation can raise its operating profit margin. By lowering
 assets or raising equity, the corporation can lower capital employed.

From 2002 to 2006(E), Ceres Gardening Company's return on average capital employed
(RoACE) trend decreased. From 16.7% in 2002 to 12.3% in 2006, the RoACE fell(E).

The operating profit margin's decline is one factor contributing to the decline in RoACE.
In 2006(E), the operational profit margin dropped from 12.5% in 2002 to 9.5%. After
covering variable costs and running expenses, a company's operating profit margin is
used to calculate its profit. The corporation is making less money from its operations as
a result of the declining operational profit margin.

The rise in average capital employed is another factor contributing to the decline in
RoACE. The amount of money that the company has consistently invested in its
operations throughout time is known as the average capital employed. Because of the
rise in average capital employed, the business must produce higher profits to maintain
the same return on average capital employed.

The corporation might concentrate on raising its operational profit margin or lowering
its average capital employed to increase its RoACE. By lowering its variable costs and
operating expenses, the corporation can raise its operating profit margin. By lowering its
assets or raising its equity, the corporation can lower its average capital employed.

For Ceres Gardening Company, the following table summarizes the trend in RoACE:

Year RoACE
2002 16.70%
2003 15.60%
2004 14.50%
2005 13.40%
2006(E) 12.30%

Question 5
Pros:

Sales growth: The GetCeres initiative enables Ceres Gardening Company to connect
with more prospective clients. Sales may rise as a result of this.

Increased customer loyalty: The GetCeres program rewards customers who buy items
from Ceres Gardening Company with discounts and other benefits. This could increase
client loyalty.

Cons:

Costs associated with marketing will rise as a result of the GetCeres program for Ceres
Gardening Company. The costs of the business' marketing may go up as a result.

More competition: The GetCeres initiative makes it simpler for other businesses to
market their goods to the clients of Ceres Gardening Company. This could make Ceres
Gardening Company more competitive.

The GetCeres initiative will be continued or not depending on a number of variables,

such as the company's financial status, its marketing objectives, and the market
environment. The business should keep the program going if it thinks the advantages
exceed the disadvantages. However, if the business decides that the benefits outweigh the
expenditures, it should end the program.

Ceres Gardening Company should take the following into account when making its
choice as extra factors:

The GetCeres program's target audience is: Are the goods and services offered by Ceres
Gardening Company a suitable fit for the target market?

The budget for marketing Does the business have the funds necessary to sponsor the
GetCeres initiative?

competing in: How fierce is the competition for the business in the intended market?

The company's objectives: What objectives does the business have for the GetCeres
program?

The management team of the organization should ultimately decide on a strategic level
whether or not to continue with the GetCeres program.