Horniman Horticulture

Q1. From Exhibit 2, we can see that Horniman Horticulture (Horniman) is growing well above the industry benchmark, which is decreasing by 1.8% per year. In 2004 and 2005, Horniman grew at 12.5% and 15.5%, respectively, indicating that it is not a typical organization within its industry. Horniman's net profit margin is also above the industry average, as both its gross and operating profit margins beat the industry benchmark by 2-3% each. However, on the accounting side, Horniman takes more than twice as long to collect receivables as the industry benchmark, which is 21.8 days, indicating that Horniman is not collecting payment fast enough. Its days in inventory also do not compare well to the industry average, as Horniman averaged 436.5 days in 2004, whereas the industry benchmark was 386.3 for the same year. This is likely due to Horniman switching its product mix to include more mature species, which is a result as an increase in customer orders of this type. Another point of contrast is the difference in payable days. In 2004, Horniman's payable days was 10.2, which is less than half of the industry benchmark (26.9 days), indicating that Horniman could perhaps take longer to pay its suppliers.

Over the time horizon of 2002-2005, the majority of business in the industry came from retail nurseries through the mid-Atlantic region, with an increase in business from small nurseries. Horniman increased the number of plant species grown by 40% in the last two years, likely to accommodate the varying orders from these smaller customers.

Q2. The actors, Maggie and Bob, are pleased with Horniman's performance and future potential, however, they have a few concerns. First of all, they are concerned with Horniman's cash balance. The cash balance declined to less than $10,000, which is well below her operating target of 8% of annual revenue. Furthermore, Maggie is particularly concerned with inventory risk. If ever an unexpected event, such as poor...