2002 2003 2004

Inventories (INV) 3089.00 2794.96 3200.61

Accounts Receivable (AR) 3485.00 4404.97 6820.74
Accounts Payable (AP) 2034.00 2973.36 4898.89
Operating Working Capital =
(INV+AR-AP) 4540.00 4226.57 5122.45

2002 2003 2004

Operating Working Capital 4540.00 4226.57 5122.45
Sales Revenue 24652.19 26796.93 29289.04
Operating Working Capital/ Sales Ratio 18.42% 15.77% 17.49%

2002 2003 2004

Inventory 3089.00 2794.96 3200.61

Cost of Goods sold per day (COGS/360) 56.84 60.29 66.23

DIO (In Days) = Inventory/ COGS per day 54.35 46.36 48.33

2002 2003 2004

Accounts Receivable (AR) 3485.00 4404.97 6820.74
Sales Revenue per day (Sales/360) 68.48 74.44 81.36
DSO (In Days) = AR/ Sales per day 50.89 59.18 83.84

2002 2003 2004

Accounts Payable (AP) 2034.00 2973.36 4898.89
Cost of Goods sold per day (COGS/360) 56.84 60.29 66.23
DPO (In Days) = AP/ COGS per day 35.79 49.32 73.97

2002 2003 2004

Total Assets 10631.00 13816.54 18295.08
Current Liabilities 2349.00 3325.39 5423.42
Capital Employed =
Total Assets - Current Liabilities 8282.00 10491.15 12871.66

2002 2003 2004

Sales 24652.19 26796.93 29289.04
Cost of Goods Sold (COGS) 20461.32 21705.51 23841.28
Variable Margin = (Sales - COGS)/Sales 17.00% 19.00% 18.60%

2002 2003 2004

Sales 24652.19 26796.93 29289.04
Earnings before Interst & Taxes 1641.45 2337.80 2407.76
Operating Margin =
Operating Income/ Sales 6.66% 8.72% 8.22%

2002 2003 2004

Net Income (PAT) 1,190.71 1,292.96 1,278.97
Owner's Equity 5024.00 6090.69 7145.84
Return on Equity =
Net Income/ Owners Equity 23.70% 21.23% 17.90%

2002 2003 2004

Adjusted Net Operating Income
= EBIT*(1-(Tax/EBT)) 1343.80 1519.57 1565.04
Average Capital Employed
= (CE at beginning of year + CE at end of
year)/2 8282.00 9386.57394079 11681.4036758
RoACE
= Adjusted Net Operating Income/
Average Capital Employed 16.23% 16.19% 13.40%

2002 2003 2004

Sales Revenue 24652.19 26796.93 29289.04
Captial Employed 8282.00 10491.15 12871.66
Capital Employed Turnover =
Sales/ Capital Employed 2.98 2.55 2.28
Operating Income 1641.45 2337.80 2407.76
Operating Margin 0.07 0.09 0.08
EBT/EBIT 0.89 0.85 0.82
Capital Employed/ Owner's Equity 1.65 1.72 1.80
EAT/EBT 0.82 0.65 0.65
ROCE = EBIT/ CE 19.82% 22.28% 18.71%

20%

2002 2003 2004

ROCE = EBIT/ CE 19.82% 22.28% 18.71%

2003 2004 2005

Operating Cash Flow 2018.87 838.24 249.65
Investing Cash Flow -2135.18 -1836.45 -1215.37
Financing Cash Flow 953.23 1274.03 1305.88
Net Cash Flow = CFO-CFI+CFF 836.92 275.82 340.16
2005 2006E
3290.61 3846.58
10286.15 14471.37
6659.56 9424.13 CAPITAL EMPLOYED 2002
Plant, Property, & Equipment (net) 2257.00
6917.20 8893.82 Increasing
Other Assets 645.00

2005 2006E Land 450.00

6917.20 8893.82 Non-current Assets 3352.00

35088.27 42597.16 Inventories 3089.00

19.71% 20.88% Increasing Accounts Receivable 3485.00

Accounts Payable 2034.00

2005 2006E Operating Working Capital 4540.00

3290.61 3846.58
Capital Employed =
7892.00
79.44 97.50 Non Current Assets + Operating Working Capital

41.42 39.45 Decrease

2005 2006E
10286.15 14471.37
97.47 118.33
105.53 122.30 Increasing

2005 2006E
6659.56 9424.13
79.44 97.50
83.84 96.66 Increasing

2005 2006E
22849.51 28116.97
7389.97 10073.57

15459.54 18043.40 Increasing

2005 2006E
35088.27 42597.16
28596.94 35100.06
18.50% 17.60% Constant

2005 2006E
35088.27 42597.16
2835.58 3018.23

8.08% 7.09% Decrease

2005 2006E
1,487.88 1,534.09
8336.14 9563.41

17.85% 16.04% Decreasing

2005 2006E
 1843.13 1961.85

14165.5978967 16751.466

13.01% 11.71% Decreasing

2005 2006E
35088.27 42597.16
15459.54 18043.40

2.27 2.36 0.20

2835.58 3018.23
0.08 0.07
0.81 0.78 DECREASE TAX 23.70%
1.85 1.89 INCREASE
0.65 0.65 DECREASE INTEREST
18.34% 16.73% DECREASE

2005 2006E
18.34% 16.73%

2006E
226.18
-1398.02
968.81
-203.03
 ECONOMIC BALANCE SHEET

2003 2004 2005 2006E INVESTED CAPITAL 2002 2003 2004

2679.69 2958.49 3617.35 4346.65 Shareholders’ Equity 5024.00 6090.69 7145.84

645.00 645.00 645.00 645.00 Current Portion of Long-term Debt 315.00 352.04 524.53

1750.00 2852.50 2852.50 2852.50 Long-Term Debt 3258.00 4400.46 5725.82

5074.69 6455.99 7114.85 7844.15 Cash -705.00 -1541.92 -1817.74

2794.96 3200.61 3290.61 3846.58 Net Debt 2868.00 3210.58 4432.60

4404.97 6820.74 10286.15 14471.37

2973.36 4898.89 6659.56 9424.13

4226.57 5122.45 6917.20 8893.82

Invested Capital =
9301.27 11578.44 14032.04 16737.97 7892.00 9301.27 11578.44
Shareholders Equity + Net Debt
2005 2006E
8336.14 9563.41

730.41 649.44

7123.39 8479.98

-2157.90 -1954.87

5695.90 7174.56

14032.04 16737.97
 Exhibit 2 - Balance Sheet (in $ thousand, some numbers are rounded)
At December 31 2002 2003 2004
Assets
Cash 705.00 1541.92 1817.74
Accounts Receivable 3485.00 4404.97 6820.74
Inventories 3089.00 2794.96 3200.61
Current Assets 7279.00 8741.85 11839.09
Plant, Property, & Equipment (net) 2257.00 2679.69 2958.49
Other Assets 645.00 645.00 645.00
Land 450.00 1750.00 2852.50
Non-Current Assets 3352.00 5074.69 6455.99
Total Assets 10631.00 13816.54 18295.08
Liabilities & Shareholders Equity
Accounts Payable 2034.00 2973.36 4898.89
Current Portion of Long-term Debt 315.00 352.04 524.53
Current Liabilities 2349.00 3325.39 5423.42
Long-Term Debt 3258.00 4400.46 5725.82
Shareholders Equity 5024.00 6090.69 7145.84

Total Liabilities & Shareholders Equity 10631.00 13816.54 18295.08

rounded)
2005 2006E

2157.90 1954.87
10286.15 14471.37
3290.61 3846.58
15734.66 20272.82
3617.35 4346.65
645.00 645.00
2852.50 2852.50
7114.85 7844.15
22849.51 28116.97

6659.56 9424.13
730.41 649.44
7389.97 10073.57
7123.39 8479.98
8336.14 9563.41

22849.51 28116.97
 Exhibit 3 - Income Statement (in $ thousand, some numbers are rounded)
For Years Ending December 31 2002 2003 2004
Sales 24,652.19 26,796.93 29,289.04
Cost of Goods Sold 20,461.32 21,705.51 23,841.28
Gross Profit 4,190.87 5,091.42 5,447.76

1,999.00 2,138.13 2,372.41

General & Administrative Expense
Research & Development 203.00 203.00 212.44
Depreciation & Amortization 347.42 412.49 455.15
Earnings before Interest & Taxes 1,641.45 2,337.80 2,407.76
(EBIT)
Interest 187.00 348.63 440.11
Earnings before Taxes 1,454.45 1,989.17 1,967.64
Taxes 263.74 696.21 688.68

Net Income 1,190.71 1,292.96 1,278.97

re rounded)
2005 2006E
35,088.27 42,597.16
28,596.94 35,100.06
6,491.33 7,497.10

2,877.24 3,578.16

222.00 231.99
556.52 668.72

2,835.58 3,018.23

546.54 658.10
2,289.04 2,360.13
801.16 826.05
1,487.88 1,534.09
Derived Statement of Cash Flows (in $ thousand, some numbers are rounded)
For Years Ending December 31 2003 2004 2005 2006E
Net Income 1292.96 1278.97 1487.88 1534.09
Depreciation & Amortization 412.49 455.15 556.52 668.72
Change in Accounts Receivable -919.97 -2415.76 -3465.42 -4185.21
Change in Inventories 294.04 -405.65 -90.00 -555.98
Change in Accounts Payable 939.36 1925.54 1760.67 2764.56
Operating Cash Flow 2018.87 838.24 249.65 226.18

Investment in PP&E -835.18 -733.95 -1215.37 -1398.02

Investment in Other Assets 0.00 0.00 0.00 0.00
Investment in Land -1300.00 -1102.50 0.00 0.00
Investing Cash Flow -2135.18 -1836.45 -1215.37 -1398.02

Debt Issuance 1494.49 1849.89 2127.99 2006.03

Retirement of Debt -315.00 -352.04 -524.53 -730.41
Dividends -226.27 -223.82 -297.58 -306.82
Financing Cash Flow 953.23 1274.03 1305.88 968.81

Change in Cash 836.92 275.82 340.16 -203.03

Change in Cash (with Formula) 836.92 275.82 340.16 -203.03

For Years Ending December 31 2003 2004 2005 2006E

Net Income 1292.96 1278.97 1487.88 1534.09
Depreciation & Amortization 412.49 455.15 556.52 668.72
Change in Accounts Receivable -919.97 -2415.76 -3465.42 -4185.21
Change in Inventories 294.04 -405.65 -90.00 -555.98
Change in Accounts Payable 939.36 1925.54 1760.67 2764.56
Operating Cash Flow 2018.87 838.24 249.65 226.18
-1,171.84
Question 1A:The company’s profits have increased by ~30% from 2002 to 2006(E). How
much of the profits estimated for the year 2006(E) will translate to the 'cash flow from
operations' for the same year? Which of the three categories in the cash flow statement
has contributed majorly to the decrease in the 'change in cash' by the company from 2003
to 2006(E)? (1+1 marks)

(Note: 'Change in cash' is the same as 'Total cash generated'. The (E) beside a year
indicates that the figures are expected in the future, i.e. the case study analysis is taking
place before the year.)

Question 1B: What is the trend in cash flow from 'operating activities', 'investing activities'
and 'financing activities' over the years? Identify at least one reason for the
increase/decrease in each of the three categories of the cash flow statement. Explain your
answer. (Note: Trend indicates whether the numbers are increasing/decreasing over the
years) (2+3 marks)

Given below is the expected cash flow profile of the company for the year 2006(E).
Analyse the expected cash flow profile of the company for the year 2006(E) and comment
on any 3 of the following factors: 'self-financing of investments', 'funding of investments',
'cash position of the company' and 'free cash flow'. (3 marks)
1A - Part1:
Cash Flow from Operations = Net Income + Depreciation & Amortization - change in
AR - Change in inventories + Change in Accounts Payble

For the year, 2006E, Cashflow from Operations = 1,534+669-4185-556+2765 =

226.18$

1A - Part2:In 2003 and 2004 the major influence is due to the higher investment
activities. However in 2005 and 2006(E) the decrease in the change in cash is
mainly due to the decline in the cashflow from Operations.

Operating Activities: Operating cashflow's trend is decreasing since 2003 to

2006(E)
Reason for the decline in the Operating Cashflow:
Ceres experienced significant delay in receiving the payment post shipment.

Investing Activities: Investing cashflow's trend is decreasing. I.e. since 2003 to

2005 and slighly started increasing from 2005 to 2006(E)
Reason for this trend in the Investing Cashflow:
In 2003 to 2004, Ceres had hugely invested on land.However in 2005 and 2006(E),
no investment on land has been made.

Financing Activities: Though there is a slight increase/ decrease in the financial

cashflow in some years, the Financing cashflow's trend is almost constant.
Reason for this trend in the Financing Cashflow:
Ceres would have taken a long-term debt hence a constant trend is seen in the
financing cashflow.

self-financing of investments: (Whether the cash is surplus so that we can

invest in asset and repay the debt/ obligations we have taken)
The cash generated from the operations was very less (~16% only) compared to the
investments done by Ceres in the year 2006(E). Hence Ceres was not in a position
to self finance and had to depend on other financing sources.

Cash position of the company: (whether it was able to generate cash or used
previous years cash)

In 2006(E) the cash inflow from Operations and Finance was not able to cover up
the outflow of Investing activities.

Therefore, Cash at the end = CFO-CFI+CFF = 226-1398+969 = -203$

Hence, Ceres experienced more outgoing than incoming money. Thus ended up
with a negative cash.

Free Cash Flow:

Free cash flow = Total cash generated from Operations – Total Investments

cash flow operations - cashflow investment = if +ve, then free cash flow available
so that it can be given as staholders (shareholdes/ debtholders)
Fundung of investment
As a part of the GetCeres program, Ceres Gardening Company started extending an increased credit period to its dealers.
operating working capital step by step through the following questions.

Question 2A: Calculate the operating working capital of Ceres Gardening Company for 2002–2006(E). (2 marks)

Operating Working Capital = Inventory+AR-AP 2002 2003 2004

Inventory 3089 2795 3201
Accounts Receivable (AR) 3485 4405 6821
Accounts Payable (AP) 2034 2973 4899
Operating Working Capital (In $) 4540 4227 5122

Question 2B: Calculate the operating working capital/sales ratio of Ceres Gardening Company for 2002 to 2006(E). 
Operating working capital/Sales ratio = (Working Capital/Sales
Revenue)*100 2002 2003 2004
Operating Working Capital 4540 4227 5122
Sales Revenue 24652 26797 29289
Operating working capital/Sales ratio 18 16 17

Question 2C: Calculate the DIO, DSO and DPO for the company from 2002 to 2006(E). (2+2+2 marks)

DIO, DSO, DPO Calculations 2002 2003 2004

Inventory 3089 2795 3201
Cost of goods sold per day (COGS/360) 57 60 66
DIO (In days) = Inventory/ Cost of goods sold per day 54 46 48
Accounts Receivable 3485 4405 6821
Sales Revenue per day (Sales Revenue/360) 68 74 81
DSO (In days) = Accounts Receivable/ Sales Revenue per day 51 59 84
Accounts Payable 2034 2973 4899
Cost of goods sold per day (COGS/360) 57 60 66
DPO (In days) = Accounts Payble/ Cost of goods sold per day 36 49 74

Question 2D: What is the implication of the long credit period given to dealers by Ceres Gardening Limited on its w

Working Captial = Inventory+Accounts Receivable-Accounts Payable

Hence long credit period/ long payment terms granted to dealers have resulted high Accounts Receivables value thus
ended up in higher operating working captial requirement.
ased credit period to its dealers. Look at the operating working capital of the company and analyse the impact of this decision on its

or 2002–2006(E). (2 marks)

2005 2006E
3291 3847
10286 14471
6660 9424
6917 8894

Company for 2002 to 2006(E).  (2 marks)

2005 2006E
6917 8894
35088 42597
20 21

. (2+2+2 marks)

2005 2006E
3291 3847
79 98
41 39
10286 14471
97 118
106 122
6660 9424
79 98
84 97

res Gardening Limited on its working capital? Explain your answer by specifying at least one reason. (1 mark)

nts Receivables value thus

 impact of this decision on its

eason. (1 mark)
Prepare and present the economic balance sheet for Ceres Gardening Company and calculate the capital employed by

Operating
ASSETS 2002 2003 2004 2005 2006E
Plant, Property, & Equipment (net) 2,257 2,680 2,958 3,617 4,347
Inventories 3,089 2,795 3,201 3,291 3,847
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Cash 705 1,542 1,818 2,158 1,955
Other Assets 645 645 645 645 645
Land 450 1,750 2,853 2,853 2,853

CAPITAL EMPLOYED 2002 2003 2004 2005 2006E

Plant, Property, & Equipment (net) 2,257 2,680 2,958 3,617 4,347
Inventories 3,089 2,795 3,201 3,291 3,847
Accounts Receivable 3,485 4,405 6,821 10,286 14,471
Other Assets 645 645 645 645 645
Land 450 1,750 2,853 2,853 2,853
Accounts Payable -2,034 -2,973 -4,899 -6,660 -9,424
Operating Working Capital 4,540 4,227 5,122 6,917 8,894

FINAL

ECONOMICAL BALANCE SHEET

CAPITAL EMPLOYED 2002 2003 2004 2005 2006E

Plant, Property, & Equipment (net) 2,257 2,680 2,958 3,617 4,347
Other Assets 645 645 645 645 645
Land 450 1,750 2,853 2,853 2,853
Non-current Assets 3,352 5,075 6,456 7,115 7,844
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 5,122 6,917 8,894

CAPITAL EMPLOYED 7,892 9,301 11,578 14,032 16,738

CE = Total Assets - Current Liabilities 2002 2003 2004 2005 2006E

Total Assets 10,631 13,817 18,295 22,850 28,117

Current Liabilities 2,349 3,325 5,423 7,390 10,074

CAPITAL EMPLOYED 8,282 10,491 12,872 15,460 18,043

culate the capital employed by the company. Paste your economical balance sheet in the submission template. 

financing
LIABILITIES & EQUITY 2002 2003 2004 2005 2006E
Accounts Payable 2,034 2,973 4,899 6,660 9,424
Current Portion of Long-term Debt 315 352 525 730 649
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

INVESTED CAPITAL 2002 2003 2004 2005 2006E

Shareholders Equity 5,024 6,091 7,146 8,336 9,563
Current Portion of Long-term Debt 315 352 525 730 649
Long-Term Debt 3,258 4,400 5,726 7,123 8,480
Cash -705 -1,542 -1,818 -2,158 -1,955
Net Debt 2,868 3,210 4,432 5,696 7,174

FINAL

MICAL BALANCE SHEET

INVESTED CAPITAL 2002 2003 2004 2005 2006E

Shareholders Equity 5,024 6,091 7,146 8,336 9,563
Current Portion of Long-term Debt 315 352 525 730 649
Long-Term Debt 3,258 4,400 5,726 7,123 8,480
Cash -705 -1,542 -1,818 -2,158 -1,955
Net Debt 2,868 3,210 4,432 5,696 7,174

INVESTED CAPITAL 7,892 9,301 11,578 14,032 16,738

9800
Analyse the key profitability ratios and identify the reason for the change in them by answering the following questions.

Note the following assumptions for solving this question:

1) The key profitability ratios are Variable Margin (as a % of sales), Operating Margin, Return on Equity and Return on Aver

2) Assume that there is no change in the capital employed during the year 2002 so that the capital employed at the beginni

3) The gross profit is also known as the variable margin.

Question 4A: Calculate the key profitability ratios for the years 2002 to 2006(E). (8 marks, 2 for each key ratio)

Variable Margin (as a % sales) 2002 2003 2004 2005

Sales 24,652 26,797 29,289 35,088
Cost of Goods Sold 20,461 21,706 23,841 28,597
Variable Margin = Sales - COGS 4,191 5,091 5,448 6,491
Variable Margin (as a % sales)
=(Variable Margin/ Sales)*100
17 19 19 19

Operating Margin (In %) 2002 2003 2004 2005

Sales 24,652 26,797 29,289 35,088
1,641 2,338 2,408 2,836
Earnings before Interest & Taxes (Operating Income)
Operating Margin (In %)
7 9 8 8
= (Operating Income/ Sales Revenue)*100

Return on Equity (In %) 2002 2003 2004 2005

Net Income (PAT) 1,191 1,293 1,279 1,488
Shareholders Equity 5,024 6,091 7,146 8,336
Return on Equity (In %)
= (Net Income/ Owners Equity)*100 24 21 18 18

RoACE (In %) 2002 2003 2004 2005

Adjusted Net Operating Income
= EBIT*(1-(Tax/EBT)) 1,344 1,520 1,565 1,843
Average Capital Employed
= (CE at begininning of year + CE at end of year)/2 8282 9387 11681 14166
RoACE
= Adjusted Net Operating Income/ Average Capital
Employed 16 16 13 13

Question 4B: What is the trend in RoE from 2002 to 2006(E)? List down at least one reason for the increase/decrea

The RoE is declining from 2002 to 2006.

One of the reasons for the decline in RoE is due to the increase in stakeholders/ owner's equity from 2002 to
2006E.

Question 4C: What is the trend in RoACE from 2002 to 2006(E)? List down at least one reason for the increase/decr
The RoACE is declining from 2002 to 2006.
One of the reasons for the decline in RoACE is less efficiency. I.e. Ceres is not efficiently converting capital
employed into profit.
ng the following questions.

n on Equity and Return on Average Capital Employed.

capital employed at the beginning of the year is the same as that during the ending of the year.

ks, 2 for each key ratio)

2006E
42,597
35,100
7,497

18

2006E
42,597
3,018

2006E
1,534
9,563

16

2006E

1,962

16751

12

ason for the increase/decrease in RoE by assessing the drivers of RoE. Explain your answer in not more than 30 words. (1+1 m

uity from 2002 to

reason for the increase/decrease in RoACE by assessing the drivers of RoACE. Explain your answer in not more than 30 wor
nverting capital
mployed.

s the same as that during the ending of the year.

assessing the drivers of RoE. Explain your answer in not more than 30 words. (1+1 marks)

E by assessing the drivers of RoACE. Explain your answer in not more than 30 words. (1+1 marks)
List down at least two pros and two cons of the GetCeres program for Ceres Gardening Company. Would you reco
ning Company. Would you recommend continuing with the program? Justify your answer. 
1

5
Free Cash Flow calculation
Free cash flow = Total cash generated from Operations – Total Investments

Funding in investment

How to calculate Adjusted Net Operating Income = EBIT*(1-(Tax/EBT))

Current Portion of Long-term Debt - Is part of Liability?