Horniman Horticulture Finance: Analysis of Cash-Flow and Working Capital Problems

Running head: HORNIMAN HORTICULTURE FINANCE 1
Horniman Horticulture
Date
Institution

HORNIMAN HORTICULTURE FINANCE 2
Introduction
The Horniman horticulture case involves the analysis of the cash-flow and working
capital problems in management that usually affect the small and growing enterprises. Under the
circumstances, the three-year operational period of the Horniman horticulture by Bob and
Maggie Brown ended in 2005, after making revenue of $ 1 million just within central Virginia.
Amidst the booming business as demands of the products goes higher that had sustainable
margins, the two managers, Bob and Maggie Brown, who were also couples, were also
experiencing the cash balancing problem. It is also important to note that the case gives more
insight into the difference that exists between the accounting profit and the cash flow. More than
that, it gives highlights into the negative effects that are common with the growth of the cash
flow. Effectively, through the case, an established forum that appreciates the relevance of the
free cash flow to business owners and the managers are given as well as introducing the aspects
of financial ratios. Lastly, the case gives more relevance to the development of the concepts of
cash cycles as well as the management of the working-capital to motivate the various concepts of
finance.
The Free Cash Flow of the Firm
According to Adame, et al. (2018), free cash flow is the cash left over after the firm has
made payments to its operating expenses as well as the capital expenditures. The free cash flow
is significant in determining the cash might of the company after funding all its operational and
capital expenses when measured regarding paying dividends and shareholders.
Free cash flow= Operating cash flow-capital expenditures

HORNIMAN HORTICULTURE FINANCE 3
The table below shows the four-year period summary of the Horniman horticulture financial
statement, from 2002 to 2005 (Schill, 2017).
HORNIMAN HORTICULTURE
The Projected Horniman Horticulture Financial Summary (in thousands of dollars)
2002 2003 2004 2005
Profit and loss statement
Revenue 788.5 807.6 908.2 1048.8
Cost of goods sold 402.9 428.8 437.7 503.4
Gross profit 385.6 378.8 470.5 545.4
SG&A expense 301.2 302.0 356.0 404.5
Depreciation 34.2 38.4 36.3 40.9
Operating profit 50.2 38.4 78.2 100.0
Taxes 17.6 13.1 26.2 39.2
Net profit 32.6 25.3 52.0 60.8
Balance sheet
Cash 120.1 105.2 66.8 9.4
Accounts receivable 90.6 99.5 119.5 146.4
Inventory 468.3 507.6 523.4 656.9
Other current assets 20.9 19.3 22.6 20.9
Current assets 699.9 731.6 732.3 833.6
Net fixed assets 332.1 332.5 384.3 347.9
Total assets 1032.0 1064.1 1116.6 1181.5
Accounts payable 6.0 5.3 4.5 5.0
Wages payable 19.7 22.0 22.1 24.4
Other payables 10.2 15.4 16.6 17.9
Current liabilities 35.9 42.7 43.2 47.3
Net worth 996.1 1021.4 1073.4 1134.2
Capital expenditure 22.0 38.8 88.1 4.5
Purchases 140.8 145.2 161.2 185.1
Free cash flow= Operating cash flow-capital expenditures
For year 2002 (thousands of dollars)= 32.6-22 =10.6