Horniman

Horniman Horticulture

Case Summary

Horniman Horticulture is a small family-owned gardening business, which was opened in 2002. It is going into its third year of operations with steadily growing revenue and expanding operations. However, while experiencing increasing demand, the firm is facing cash deficit. Resolving the issue is central to company’s financials, since not only it would be impossible to finalize a projected acquisition of 12-acre of farmland, but also it is threatening to company’s financial health.

1. What is your assessment of the financial performance of Horniman Horticulture?

a. Comparative Statement Analysis

Profit and Loss Statement.

Over the first three years of its existence the firm is showing a steady revenue growth. Since 2002 the revenue went from $788,500 to $1,048,000, which constitutes a 25% increase. Such financial performance is complemented by corresponding increase in gross profits, operating profits and net profits. When compared to prior year, performance figures in 2005 very closely related. During that year all Profit and Loss Statement positions moved very close to 13% with very slight variations (see Exhibit 1). Such proportional growth suggests a potential financial health of the firm. However, it is only accounting data, which leaves out relevant information about operational performance. In order to make a conclusion about true financial health balance sheet and financial ratios are needed.

Balance Sheet.

The first line of the balance sheet shows a rapid decline in the cash balance of the company. This account fell from $120,000 to $9,400. Such an amount is below projected target value of 8% of annual revenue, and should have been $83,900. It is worrisome that its current accounts payable constitutes more than 50% of cash balance ($5,000). This deficit is exacerbated by nonexistence of bank credit. If receivables start to slow down, the firm may experience financial...