As a part of the GetCeres T M program, Ceres Gardening Company started extending an increased credit period to its dealers. Look at the operating working capital of the company and analyse the impact of this decision on its operating working capital step by step through the following questions.

Question 2A: Calculate the operating working capital of Ceres Gardening Company for 20022006(E). (2 marks)

Question 2B: Calculate the operating working capital/sales ratio of Ceres Gardening Company for 2002 to 2006(E). (2 marks)

Question 2C: Calculate the DIO, DSO and DPO for the company from 2002 to 2006(E). (2+2+2 marks)

Question 2D: What is the implication of the long credit period given to dealers by Ceres Gardening Limited on its working capital? Explain your answer by specifying at least one reason. (1 mark)

Question 3 (3 marks) Prepare and present the economic balance sheet for Ceres Gardening Company and calculate the capital employed by the company. Paste your economical balance sheet in the submission template.

Derived Statement of Cash Flows in thousand, some numbers are rounded) For Years Ending December 31 2003 2004 Net Income 1,293 1,279 Depreciation & Amortization 412 455 Change in Accounts Receivable -920 -2,416 Change in Inventories 294 -406 Change in Accounts Payable 939 1,926 Operating Cash Flow 2,019 838 2005 1,488 557 -3,465 -90 1,761 250 2006E 1,534 669 4,185 -556 2,765 226 -1,398 -1,215 0 0 Investment in PP&E Investment in Other Assets Investment in Land Investing Cash Flow -835 0 -1,300 -2,135 -734 0 -1,103 -1,836 0 0 -1,215 -1,398 Debt Issuance Retirement of Debt Dividends Financing Cash Flow 1,494 -315 -226 953 1,850 -352 -224 1,274 2,128 -525 -298 1,306 2,006 -730 -307 969 Change in Cash 837 276 340 -203 Exhibit 3 - Income Statement in $ thousand, some numbers are rounded) For Years Ending December 31 2002 2003 2004 Sales 24,652 26,797 29,289 Cost of Goods Sold 20,461 21,706 23,841 Gross Profit 4,191 5,091 5,448 2005 35,088 28,597 6,491 2006E 42,597 35,100 7,497 1,999 2,138 2,372 2,877 3,578 General & Administrative Expense Research & Development Depreciation & Amortization 203 347 203 412 212 455 222 557 232 669 1,641 2,338 2,408 2,836 3,018 Earnings before Interest & Taxes Interest Earnings before Taxes Taxes 187 1,454 264 349 1,989 696 440 1,968 689 547 2,289 801 658 2,360 826 Net Income 1,191 1,293 1,279 1,488 1,534 2005 2006E Exhibit 2 - Balance Sheet (in $ thousand, some numbers are rounded) At December 31 2002 2003 2004 Assets Cash 705 1,542 1,818 Accounts Receivable 3,485 4,405 6,821 Inventories 3,089 2,795 3,201 Current Assets 7,279 8,742 11,839 Plant, Property, & Equipment (net) 2,257 2,680 2,958 Other Assets 645 645 645 Land 450 1,750 2,853 Non-Current Assets 3,352 5,075 6,456 Total Assets 10,631 13,817 18,295 Liabilities & Shareholders Equity Accounts Payable 2,034 2,973 4,899 Current Portion of Long-term Debt 315 352 525 Current Liabilities 2,349 3,325 5,423 Long-Term Debt 3,258 4,400 5,726 Shareholders Equity 5,024 6,091 7,146 2,158 10,286 3,291 15,735 3,617 645 2,853 7,115 22,850 1,955 14,471 3,847 20,273 4,347 645 2,853 7,844 28,117 6,660 730 7,390 7,123 8,336 9,424 649 10,074 8,480 9,563 Total Liabilities & Shareholders Equity 10,631 13,817 18,295 22,850 28,117