Horniman Horticulture Essay

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Use the information in Case 9 to answer the following questions. 1. Analyse the strengths and weaknesses of the company Horniman Horticulture. (2 marks) Strengths of the company are that they constantly have increasing profit, increasing revenue and also have high returns on equity. They assess potential risks before making investment decisions which is shown through Bob and Maggie refusing to take out a loan when they don’t have the means to make repayments as the majority of their money is tied up to their inventory, and their inventory faces a huge unpredictable risk from the weather. In addition Bob and Maggie both have calculations and predictions made using information available to them showing efficiency and awareness of the market conditions; alongside this Maggie’s conservative nature in regards to cost saving has helped them garner up more cash. The company’s weaknesses seem to be their low liquidity levels, which could see them in financial difficulty in an unexpected change in the market conditions, or potentially hazardous weather that could damage their inventory. To add to this risk Maggie has a strong deterrence towards any type of debt financing. 2. Calculate free cash flow to the owners of the firm (FCFE) for 2005 (i.e. operating cash flow less capital expenditure less net working capital). Calculate the cash cycle of the business for 2005. Using these calculations explain how the company using it cash. (4 marks) To calculate free cash flows we use: Operating cash flow=operating profit + depreciation-taxes =100+49.9-39.2 =101.7 Free cash flows=Operating opening cash flows – Operating closing cash flows =101.7-4.5-(786.3-689.1) =0 To calculate the cash cycle we use: Cash cycle=inventory

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