Finance Case Study

Topics: Generally Accepted Accounting Principles, Balance sheet, Accounts receivable Pages: 4 (1122 words) Published: September 23, 2012
Assess the strengths and weakness of the company Horniman Horticulture. Over the past years, Horniman Horticulture ran very well under the control of Bob and with the overseen of its finance by Maggie. Firstly, no debt happened through the management. Secondly, their equity capital kept increasing which resulted from the revenue was $788,500 in 2002, however, it was $1,048,800 in 2005 with the revenue increased by 15.5% based on 2004. It is obviously that the business had a overall prospect. Finally, their gross profits, operating profits and net profits keep increasing from year 2003 to 2005 as well as the changes in their gross margin, operating margin and net profit margin. In general, the business operated perfect and had a booming future. However, there are still some weaknesses if the company. The most obvious problem is their cash reflected decreasing since 2002. In 2005, the cash was below $10,000 which would caused their payable days become shorter and receivable days make longer.

How is the company using its cash?
There are two aspects to be considered in terms of the cash used by the company: where the cash came from and where the cash be used. It is obviously that sales were primarily to retail nurseries which means by selling. In terms of the profit, the Horniman Horticulture had brought rapidly increasing gross profit, operating profit and net profit in several years, and gross margin, profit margin and net profit margin had kept increasing from year 2003 to year 2005. However, recently adverse decline in the firm's cash balance from $120,100 in 2002 to $9,400 in 2005 caused Maggie's concern which means their cash had gone somewhere through the booming business. Where their cash has used can be understood easily by checking their balance sheet. Great amounts of increasing accounts receivable, inventory, current assets compared with small amount increasing in accounts payable, wage payable and other payables caused incremental assets with a...
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