Horniman Horticulture
Background
Horniman Horticulture is a whole-sale nursery business that has been owned by Maggie and Bob for three years. They have seen an increase in business and number of plants grown at the nursery and are expecting demand to continue to grow. In 2005, the business’s profit margin was expected to grow to 5.8% up from 3.1% in 2003. This projected growth seems accurate considering Maggie’s conservative approach with the companies cash balance. Handling the finances, Maggie dislikes debt financing because of her fear of holding too much inventory and thus not being able to make interest payments. Since the business relies on good weather conditions with some mature plants taking years to grow, severe weather can destroy this inventory.
The family has high hopes for the future, since changing their business strategy; they now are acquiring more mature plants in response to the demand for “instant landscape” customers and are seeing positive signs of economic strength. Because of Maggie’s accounting policies, the business has started to see a decrease in cash balance which falls below their target of comfort.
Projection for 2006 Looking at Exhibit A, we have given the projection for 2006. Due to the local economy growing, demand is also going to continue to grow in their business. Most of their inventory will be ready for customers, since it has been maturing over the last 2 to 5 years resulting in their revenue growth to be estimated 30% higher in 2006 to $1,360,000. In order to have opportunities for growth, Maggie and Bob want to buy the neighboring 12 acres of farmland. Because of this plan to buy the parcel of land, their capital expenditures are estimated to be $75,000 which they do not plan to finance.
Case Issue
Revenue growth over the past 3 years has surpassed the industries benchmark and could indicate that Horniman can take an aggressive competitive advantage early on. Some financial ratios prove the company is performing above industry
Horniman Horticulture is a whole-sale nursery business that has been owned by Maggie and Bob for three years. They have seen an increase in business and number of plants grown at the nursery and are expecting demand to continue to grow. In 2005, the business’s profit margin was expected to grow to 5.8% up from 3.1% in 2003. This projected growth seems accurate considering Maggie’s conservative approach with the companies cash balance. Handling the finances, Maggie dislikes debt financing because of her fear of holding too much inventory and thus not being able to make interest payments. Since the business relies on good weather conditions with some mature plants taking years to grow, severe weather can destroy this inventory.
The family has high hopes for the future, since changing their business strategy; they now are acquiring more mature plants in response to the demand for “instant landscape” customers and are seeing positive signs of economic strength. Because of Maggie’s accounting policies, the business has started to see a decrease in cash balance which falls below their target of comfort.
Projection for 2006 Looking at Exhibit A, we have given the projection for 2006. Due to the local economy growing, demand is also going to continue to grow in their business. Most of their inventory will be ready for customers, since it has been maturing over the last 2 to 5 years resulting in their revenue growth to be estimated 30% higher in 2006 to $1,360,000. In order to have opportunities for growth, Maggie and Bob want to buy the neighboring 12 acres of farmland. Because of this plan to buy the parcel of land, their capital expenditures are estimated to be $75,000 which they do not plan to finance.
Case Issue
Revenue growth over the past 3 years has surpassed the industries benchmark and could indicate that Horniman can take an aggressive competitive advantage early on. Some financial ratios prove the company is performing above industry