Case #9: HORNIMAN HORTICULTURE Synopsis and Objectives This 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. It also provides a forum for instilling appreciation for the relevance of free cash flow to business owners and managers, introducing financial-ratio analysis, developing the concept of the cash cycle and working-capital management, and motivating the use of financial models.
1. How would you describe the attitudes and emotions of the typical QuikTrip employee? How do these attitudes and emotions influence the employees’ work behaviors? According the company’s growth, being recognized for by Fortune magazine for nine consecutive years as the best companies to work for, the time that the company invests in training and emphasizing the importance of its employees, I would say that this company has employees with positive attitudes, emotions and work ethic. And it seems that with so much time devoted to training and hiring people who like people that the company’s core values can somewhat be instilled within the person rather easily.
It has drastically increased the marketing capabilities for local businesses while reducing costs for the consumer. The consumer now has the opportunity to get involved in new activities with reduced risk. Groupon’s success is partially due to their knowledge of consumer behavior. In 2008, Goupon had 400 subscribers in Chicago. Now, they have 60 million subscribers in 40 countries today making them the fastest growing company in the world.
This had worked to perfection as Champions had begun seeing profits of $4.7 million and $8.1 million in 1993 and 1994 respectively. In April of 1994, Champions decided to list common stocks through an IPO to repay $11 million in debt that was outstanding as of April, update the production process, and acquire additional working capital for future growth. Why Champion Might Choose to Pay a Dividend In 1988, Sequoia Associates acquired Champion Road Machinery and improved the company’s performance by significant amounts. They did so by implementing a new corporate strategy. This involved: * Naming a new board * Focusing on process improvement * Expanding and improving the quality of the product line * Reducing the workforce * Being more responsive to customer design recommendations * Hiring a new executive Because of these changes, Champion was performing well above expectations, which would have allowed them to be financially stable enough to pay dividends.
Additionally, even if a good potential target was identified, the change in federal regulations had made obtaining the necessary leverage a challenging task, forcing LBO firms to put up over 30% of the buyout in equity, thereby reducing the possible returns. Although the banking market had tightened regulation and made debt harder to come by, equity from investors was pouring in. 2004 had been a record-breaking year in terms of dollars invested as well as transactions completed, and 2005 was on track to continue increasing those figures. Purchase price for companies were hovering at about 7x EBITDA, the highest since 1999. Some of the reasons for this increase in deal size include: • Firms were able to raise a lot of money and felt the need to put that money to work • Firms were becoming industry-focused, developing operational expertise to help their targets after the buyout process • Firms were diversifying into other markets such as Europe, Asia and India, where LBOs still presented attractive returns such as the ones seen in the US circa 1980’s • U.S. private equity firms were establishing international offices to deploy this excess of funds, sometimes “bidding up” or overpaying just to ensure capital deployment 2.
IDS Financial Services What is the business issue facing Reed Saunders and IDS? IDS was facing new challenges as to how to maintain this 30 percent growth rate in the market place where the competition was increasing day by day. The consumer financial industry is growing very fast which creates new opportunities to be exploited. With this the competition is also growing as the competitors are becoming more and more aggressive in marketing and selling their products. Short Term Objective: Increase sales revenue by 30% over the next 3 years while reducing the cost of sales by 5% per year.
Costco is doing great job in making sure that revenues constantly grow as shown below while maintaining a proportional amount of expenses to keep the profits the same or a little high from the previous year. Keeping these numbers high during a recessionary period is a very impressive feat by the management of Costco. One number to point out is that 2009 was a down year for Costco, all of the above ratios were lower than in 2008, but they bounced back in 2010 and in 2011. The 2009 year is merely an Outlier in Costco’s financial analysis because of the recession which was at a high in 2009. As the economy bounced back, so did Costco and its bottom line.
We can see from history that our failing economy may take us back into another depression like the Great Depression of 1929. Council of Economic Advisers chairperson Christina Romer warns that “upcoming economic problems could be more severe than anything the country has faced over the past half century” (Pickler, 2008). If we fail to act now, history will repeat itself. The stimulus bill should save and create millions of jobs. The President believes “if we do not act swiftly and boldly .
We have already reached a pivotal point which was not projected until 2016. Each person who analyzes the causes may consider one cause more significant than the other, but each of these issues has contributed. The events and complications combined with the nation’s two-year recession, heaping debt, and growing unemployment have left a program that was in need of reforms, now in need of reforms so significant that its survival is impractical. Currently, we Americans are responsible for saving at least 60% of what will be required to retire comfortably. Considering Social Security’s ineffective reform options, Americans must take full responsibility for their retirement to secure a sound financial
Reflection To realize their goals, organizations need to enlist the support of their employees. This assignment has provided me the insight to be able to identify some of the barriers that has complicated the communication process within my organization. Through my research I have gathered that communication cannot be easily defined but the conclusion has been the same among all researchers. They all agree that effective communication is a vital component in the achievement of high customer satisfaction. During my research I have concluded the foundation of a good organization is regular and complete communication.