Case 8: Horniman Horticulture This case illustrates the problems of cash ow and workingcapital management that are typical for small, growing businesses. At the end of 2015, Bob and Maggie Brown have completed their third year of operating Horniman Horticulture (HH), a $1millionrevenue woodyshrub nursery in central Virginia. While experiencing strong demand and improved margins, the Browns are puzzled by their plummeting cash balance. The case highlights the difference between cash ow and accounting prots, as well as the common negative effects of growth on cash ow. It also motivates discussions about nancial ratio analysis, the cash cycle, and working capital management; development of a financial model; and the relevance of free cash ow to business owners and managers. Study Questions 1. Case Exhibit 1 summarizes HH nancial statements for the past four years and Case Exhibit 2 provides selected financial ratios. What is your assessment of the recent nancial performance of the business? How do HH ratios compare with the benchmarks prepared by Maggie, based on average data for publicly-traded horticultural producers? What explains the erosion of the cash balance? Do you agree with Maggie Brown's accounts-payable policy? Before you answer, be sure to consider the information in footnote 2 on page 128. Let's anticipate the nancial position of the business in the next year of operation. Extend the nancial statements through 2016, assuming (1) the expected revenue growth is 30%, as predicted by Bob Brown on page 129; (2) Depreciation expense and capital expenditures are $46,000 and $75,000, respectively, as estimated by Maggie Brown in footnote 4 on page 129; and (3) the percent of sales approach provides a reasonable forecast of all operang expenses, all current assets (except cash) and all current liabilities. The cash balance will be the amount required to "plug\" the balance sheet (Le. make it balance): Specically, cash equals (Curr. liab. + Net worth) (Accounts receivable + Inventory + Other current assets + Net xed assets). A negative cash balance implies that the Browns need to either seek external nancing or scale down their business plan. With a lower revenue growth target, would HH be able to avoid a cash deciency? Discuss what other measures the Browns might take in order to approach the cash level that Maggie considers ideal, where the available cash is equal to 8% of revenue