Name Sagar Chauhan

Question 1

Write your answer for Part A here.

So, calculate the amount of profit estimated for year 2006(E), we can use the cash flow
statement data for year 2006(E).
Net income for 2006(E) = $1534 thousand and Operating Cash Flow = $226 thousand

Therefore, $226 thousand of the estimated profit will translate to the cash flow from
operations.

Out of the three categories of the cash flow statement i.e operating, investing and
financing cash flow the majority contributor to the decrease in ‘change in cash’ is
Operating Cash Flow Category.

Write your answer for Part B here.

Trend in Cash Flow:

(i) Operating Activities 2,019 838 250 226

As it is evident from the cash flow statement the trend is Decreasing.

Reason: The Primary reason for this significant decrease is due to increase in the
Account Receivables, i.e more sales are done on credit which reduces the cash
available foe operations.
(ii) Investing Activities: -2,135 -1,836 -1,215 -1,398

The trend here is also decreasing in the investing activities.

Reason: There has been the investment made in PP&E and also some investment
made in land as well result in decreasing trend in cash flow in investing activity.

Investment in PP&E -835 -734 -1,215 -1,398

Investment in Land -1,300 -1,103 0 0

 But the trend is less negative dure to decrease in the investment in the land.

Financing Activity:
953 1,274 1,306 969

The trend here is increasing initially and then decreasing in year 2006(E).
Reason: The increase in financing cash flow from 2003 to 2005 can be attributed to high
debt and decrease after that due to debt retirement.

Write your answer for Part C here.

Answer: Based on the given chart below is the analysis for 'self-financing of
investments', 'funding of investments', 'cash position of the company’

(I) Self-financing of Investments: Self financing of investment refers to when a

company is generating enough cash flow from it operations that It can fund its
investing activities.

As per the given Chart Cash flow from the operating activities is positive but not that
much as it from the cash outflow from operating activities. So we can say that
operations are generating cash but not enough that it can Self Finance.

(ii) Funding of Investments: It means that the company’s money into the investment
activities whether it is self-financing, debt or equity.

From the chart it is evident that there is cash outflow from investment activities
means company is making substantial investments. As we see on the previous point
it is not Self Financing so it is from external fundings.

(iii) Cash Position of the Company: It means the amount of the cash available at the
end of period.
The chart shows the positive cash at the end this means that company ends its
period with some cash in hand

Question 2
Write your answer for Part A here. Paste the excel sheet containing your calculations here.
Operating working capital = Accounts Receivable + Inventories − Accounts Payable

Year 2002 2003 2004 2005 2006

Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Inventories 3,089 2,795 3,201 3,291 3,847
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

Write your answer for Part B here. Paste the excel sheet containing your calculations here.
Operating Working Capital/Sales Ratio:

Year 2002 2003 2004 2005 2006

Operating Working Capital 4,540 4,227 5,123 6,917 8,894
Sales 24,652 26,797 29,289 35,088 42,597
Ratio 0.184162 0.157742 0.174912 0.197131 0.208793

Write your answer for Part C here. Paste the excel sheet containing your calculations here.
Days Inventory Outstanding (DIO): Inventories/Cost of Goods Sold (COGS) * 365

Year 2002 2003 2004 2005 2006

Inventories 3,089 2,795 3,201 3,291 3,847
Cost of Goods Sold 20,461 21,706 23,841 28,597 35,100
DIO 55.1032494 47 49 42 40

Days Sales Outstanding (DSO): Account Receivable/Sales * 365

Year 2002 2003 2004 2005 2006

Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Sales 24,652 26,797 29,289 35,088 42,597
DSO 51.5988682 60 85 107 124

Days Payable Outstanding (DPO): Accounts Payable/Cost of Goods Sold * 365

Year 2002 2003 2004 2005 2006
Accounts Payable 2,034 2,973 4,899 6,660 9,424
Cost of Goods Sold 20,461 21,706 23,841 28,597 35,100
 36.28358
DPO 99 50 75 85 98

Write your answer for Part D here.

Implication: The long credit period has significantly increased the company's Days Sales
Outstanding (DSO), meaning it takes longer to collect cash from customers. This results in
more money in accounts receivable, directly affecting working capital.

Explanation: From 2002 to 2006(E), accounts receivable increased from $3,485 thousand to
$14,471 thousand. This rise means more funds are tied up in receivables, reducing cash
available for operations, increasing operating working capital, and potentially causing cash flow
issues

Question 3

Write your answer for Part A here. Also, paste the economical balance sheet prepared by
you here.
Economic Balance Sheet:

At December 31 2002 2003 2004 2005 2006E

Capital Employed

Operating working capital 4540 4227 5122 6917 8894

Accounts Receivable 3,485 4,405 6,821 10,286 14,471

Inventories 3,089 2,795 3,201 3,291 3,847

Other Assets 645 645 645 645 645

Plant, Property, & Equipment (net) 2,257 2,680 2,958 3,617 4,347
 Accounts Payable 2,034 2,973 4,899 6,660 9,424

Land 450 1,750 2,853 2,853 2,853

Total Capital Employed 13,761 18,044 23,417 27,609 35,056

Capital Invested

net debt 2,868 3,211 4,433 5,696 7,175

Cash 705 1,542 1,818 2,158 1,955

Current Portion of Long-term Debt 315 352 525 730 649

Long-Term Debt 3,258 4,400 5,726 7,123 8,480

Shareholder’s Equity 5,024 6,091 7,146 8,336 9,563

Total Capital Invested 13,761 18,044 23,417 27,609 35,056

Question 4

Paste the excel sheet containing the final answers for Part A here.

Variable Margin (%of sales) 17 19 18.6 18.5 17.6

Operating Margin 0.07 0.09 0.08 0.08 0.07
ROE 0.237062 0.21228 0.178981 0.178503 0.16041
ROACE 0.2 0.25 0.21 0.2 0.18

Write your answer for Part B here.

Trend on RoE:
Return on Equity 0.24 0.21 0.18 0.18 0.16

Reason: As it is evident the RoE is decreasing from 2002 to 2006. Increasing capital
employed and rising equity have diluted returns, despite growing net income. Thus this
decline reflects a reduction in the efficiency with which the company is using
shareholders' equity to generate profits.

Write your answer for Part C here.

Trend in RoACE :
 RoACE 0.2 0.25 0.21 0.2 0.18

ROACE decreased from 0.20 in 2002 to 0.18 in 2006E. This indicates a declining
efficiency in generating profits relative to capital employed over the period. Capital
employed grew faster than the increase in gross profit, reducing ROACE. Despite rising
profits, the proportional growth in capital employed diminished ROACE.

Question 5

Write your answer for Part A here.

Pros of the GetCeres Program:

Increased Sales Potential: The program can help expand market reach and drive higher
sales volumes, contributing to revenue growth.
Enhanced Customer Engagement: It improves customer interaction and loyalty through
targeted marketing and personalized experiences.

Cons of the GetCeres Program:

High Costs: Implementing and maintaining the program can be expensive, potentially
affecting profitability if not managed well.
Complex Integration: Integrating the program with existing systems and processes might be
challenging and resource-intensive.

Recommendation: Continue with the Program.

Reason: Despite the cons, the benefits of increased sales and enhanced customer
engagement can outweigh the costs. The program should be evaluated periodically to
ensure it delivers expected returns and adjustments made as necessary to optimize
performance.