Horniman Essay

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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. Questions 1. What is your assessment of the financial performance of Horniman Horticulture? (Examine the financial statements in Exhibit 1 and the financial ratios in Exhibit 2) * What is going right with this business? In the view of the promising dimensions of the business, it enjoyed a constant growth over the past three years in revenue, profits and size under Bob’s welcomed leading and management. Moreover, Bob’s personality and management style were welcomed by his staff, which contributed to the continuous boom of the business. In addition to these, the increasing demand for the business’s products could be ensured by the future promising local economy (Bruner & Eades & Schill 2008). Particularly, its growth position can be seen from Exhibit 2: the gross margin increased from 48.9% to 52% in 2005, operating margin increased from 6.4% to 9.5% in 2005, and net profit margin increased from 4.1% to 5.8% in 2005. These could indicate that the business was profitable and was growing

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