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Cash flow and working-capital management
1: Case reading: Read through the Horniman Horticulture case (Case 11) in the text and answer the following questions. (50 points)
Case description:
Horniman Horticulture 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. The case also provides a forum for:
i. instilling appreciation for the relevance of free cash flow to business owners and managers,
ii. introducing financial-ratio analysis,
iii. working-capital management, and
iv. motivating the use of financial models.
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1): a. From an Income Statement perspective what is going right with this business?
i. list why you believe things are going right in terms of ratio analysis?
b. What concerns you with the balance sheet?
i. support your concerns with ratio analysis?
2. a. What are the 4-yr cumulative cash flows?
b. Where is the cash going?
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3. a. What is Maggie’s accounts payable policy?
b. Do you agree with Maggie Brown’s accounts-payable policy?
4. a. What are the alternatives for solving the business’s cash problem?
The free-cash-flow calculation provides a reasonable framework for establishing the alternatives facing the Browns.
b. Explain how realize the Browns can solve their problem?
2: Based on the 2016 financial report of Facebook, forecast the financial performance in 2017, using percent of sales forecasting method. (50 points)
Since there are only two balance sheets, you just use the data available to do forecasting. Let me know your method of finding your base year, average, last year’s value, etc.
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