Overview: This is a presentation on Horniman Horticulture, we have devised a Naïve and Revised forecast to extrapolate out the income statement and balance sheet from 2016 to 2018. Our presentation outlines the difference between Profits and Cash. Horniman Horticulture had high profitability but their cash balance was decreasing year-over-year. Our Revised Forecast applies our assumptions to create manageable growth without addition financing through debt or equity. Problem: Horniman Horticulture started with a cash balance $120,000 at the end of 2012, then decreased to $9,400 at the end 2015. Cash was eroding year-over-year with no signs of stopping as the naive forecast shows they will have a negative cash balance in 2016 through 2018. Solution/Assumption: We discovered that Horniman Horticulture was growing to fast for the business to fund its operations without debt or equity. Their cash cycle was above industry average with high receivable days, low payable days, and high inventory days. We kept payable days constant as the firm gets a 2% discount from suppliers when paid under 10 days. We increased receivable days and inventory days as they go to a more mature plant which increase gross margin. The change in cash cycle decreases revenue growth from 30% to and controllable growth of 8.3%.

1. Horniman
Horticulture
Ryan Maas, Kaitlyn Marquardt, Cameron McIntosh,
Kody Neslund
1

2. Outline
• Company Overview
• Problem
• Past Financial Analysis
• Brown’s Accounts-Payable Policy
• Cash Erosion
• Case Analysis (Assumptions)
2

3. Overview
Wholesale Nursery
• Bob oversees operations
• Retail nurseries throughout
mid-Atlantic region
• 52 Greenhouses, 40 acres of
productive fields
• 12 full-time and 15 seasonal
employees
• Expanded the number of plant
species by more than 40%
Finances
• Maggie oversees finances
• Two clerks
• Focused on company’s books
and controllable growth
3

4. Problem:
4
1. Substantial revenue growth
2. Cash eroding year-over-year
• $120,100 in 2012 to 9,400 in 2015
3. Cash Cycle is working against Horniman
• Inventory days and Receivable days

5. Past Financial Performance:
Income Statement
5
Profit Margin
(Increase)
Revenue Growth
(Increase)
Return on Asset
ROA
(Increase)
Return on Capital
ROC
(Increase)
Profitability

6. Past Financial Performance:
Balance Sheet
6
Cash
(Decrease)
Payable Days
(Low)
Inventory Days
(High)
Receivable Days
(High)
Cash
Balance

7. 7
2012 2013 2014 2015 2016 2017 2018
Profit and loss statement Actual Actual Actual Actual Forecast Forecast Forecast
Revenue 788.5 807.6 908.2 1048.8 1363.4 1772.5 2304.2
Cost of goods sold 402.9 428.8 437.7 503.4 654.5 850.8 1106.0
Gross profit 385.6 378.8 470.5 545.4 709.0 921.7 1198.2
SG&A expense 301.2 302.0 356.0 404.5 525.9 683.6 888.7
Depreciation 34.2 38.4 36.3 40.9 46.0 59.8 77.8
Operating profit 50.2 38.4 78.2 100.0 129.5 168.4 218.9
Taxes 17.6 13.1 26.2 39.2 50.4 65.6 85.2
Net profit 32.6 25.3 52.0 60.8 79.1 102.8 133.6
Balance sheet
Cash 120.1 105.2 66.8 9.4 -173.4 -388.9 -646.3
Accounts receivable 90.6 99.5 119.5 146.4 190.1 247.2 321.3 2013 2014 2015 2016 2017 2018
Inventory1 468.3 507.6 523.4 656.9 854.0 1110.2 1443.3 Operating Profit 38.4 78.2 100.0 129.5 168.4 218.9
Other current assets2 20.9 19.3 22.6 20.9 27.2 35.4 46.1 Taxes 13.1 26.2 39.2 50.4 65.6 85.2
Current assets 699.9 731.6 732.3 833.6 897.9 1004.0 1164.4 Depreciation 38.4 36.3 40.9 46.0 59.8 77.8
Net fixed assets3 332.1 332.5 384.3 347.9 376.9 392.1 389.3 Operating Cash Flow 63.7 88.3 101.7 125.1 162.6 211.4
Total assets 1032.0 1064.1 1116.6 1181.5 1274.8 1396.1 1553.7 Capex 38.8 88.1 4.5 75.0 75.0 75.0
Inc in NWC 24.9 0.2 97.2 50.1 87.6 136.4
Accounts payable 6.0 5.3 4.5 5.0 6.5 8.5 11.0 Free Cash Flow 0.0 0.0 0.0 0.0 0.0 0.0
Wages payable 19.7 22.0 22.1 24.4 31.7 41.2 53.6
Other payables 10.2 15.4 16.6 17.9 23.3 30.3 39.3
Current liabilities 35.9 42.7 43.2 47.3 61.5 80.0 104.0 2013 2014 2015 2016 2017 2018
Net worth 996.1 1021.4 1073.4 1134.2 1213.3 1316.1 1449.7 Inventory days 432.1 436.5 476.3 476.3 476.3 476.3
Receivable days 45.0 48.0 50.9 50.9 50.9 50.9
Capital expenditure 22.0 38.8 88.1 4.5 75.0 75.0 75.0 Cash cycle 477.0 484.5 527.2 527.2 527.2 527.2
Purchases4 140.8 145.2 161.2 185.1 240.6 312.8 406.7 Payable days 13.3 10.2 9.9 9.9 9.9 9.9
NWC 664.0 688.9 689.1 786.3 836.4 924.0 1060.4 Financing days 463.7 474.3 517.4 517.3 517.3 517.3
Change in NWC 24.9 0.2 97.2 50.1 87.6 136.4
2012 2013 2014 2015 2016 2017 2018 Benchmark
Revenue growth 2.9% 2.4% 12.5% 15.5% 30.0% 30.0% 30.0% (1.8)%
Gross margin (Gross profit / Revenue) 48.9% 46.9% 51.8% 52.0% 52.0% 52.0% 52.0% 48.9%
Operating margin (Op. profit / Revenue) 6.4% 4.8% 8.6% 9.5% 9.5% 9.5% 9.5% 7.6%
Net profit margin (Net profit / Revenue) 4.1% 3.1% 5.7% 5.8% 5.8% 5.8% 5.8% 2.8%
Return on assets (Net profit / Total assets) 3.2% 2.4% 4.7% 5.1% 6.2% 7.4% 8.6% 2.9%
Return on capital (Net profit / Total capital) 3.3% 2.5% 4.8% 5.4% 6.5% 7.8% 9.2% 4.0%
Receivable days (AR / Revenue * 365) 41.9 45.0 48.0 50.9 50.9 50.9 50.9 21.8
Inventory days (Inventory / COGS * 365) 424.2 432.1 436.5 476.3 476.3 476.3 476.3 386.3
Payable days (AP / Purchases * 365) 15.6 13.3 10.2 9.9 9.9 9.9 9.9 26.9
NFA turnover (Revenue / NFA) 2.4 2.4 2.4 3.0 3.0 3.0 3.0 2.7
Free Cash Flow
Cash Cycle
HORNIMAN HORTICULTURE
"Naïve" Forecast
Projected Horniman Horticulture Financial Summary (in thousands of dollars)
2012 2013 2014 2015 2016 2017 2018
Operating profit 50.2 38.4 78.2 100.0 129.5 168.4 218.9
Net profit 32.6 25.3 52.0 60.8 79.1 102.8 133.6
Cash 120.1 105.2 66.8 9.4 -173.4 -388.9 -646.3
-700.0
-600.0
-500.0
-400.0
-300.0
-200.0
-100.0
0.0
100.0
200.0
300.0
$Dollars(inthousands)
Cash vs Profit

8. Cash Erosion: Cash Cycle
8
Inventory
Days
Receivable
Days
Payable
Days

9. Cash Erosion: Free Cash Flow
Exhibit 2, 2013 to 2015 actuals
2016 to 2018 forecast
Exhibit 1, FCF with 8% cash balance
9

10. Brown’s Accounts-Payable Policy
Policy (30-10)
• 30 days to pay supplier
• If paid in 10 days, you get a 2%
discount
● 2% is per period not annual
● Annualized savings return of
36.5%
Cost of Not Taking Discount
• Expected 2016 profit loss
● 2% x $240,600 (purchases)=
$4,800
• Expected capital increase
● Increase from $6,500 to
$19,700
• Cost of not taking discount
● $4,810/($19,700-$6,500)= 36%
10

11. Recommendations
• Decrease in receivables
● Change the terms for customers to pay sooner
• Increase in Inventory days
● Switching to a more mature plant, the longer the inventory
days
• Gross margin increase
● Mature plants provide a better gross margin
• Decrease in revenue growth
● A decrease in receivables will slow growth
● A more mature plant will yield a higher price driving
customers to competitors for a lower price
11

12. 12
2012 2013 2014 2015 2016 2017 2018
Profit and loss statement Actual Actual Actual Actual Forecast Forecast Forecast
Revenue 788.5 807.6 908.2 1048.8 1135.9 1230.1 1332.2
Cost of goods sold 402.9 428.8 437.7 503.4 522.5 541.3 559.5
Gross profit 385.6 378.8 470.5 545.4 613.4 688.9 772.7
SG&A expense 301.2 302.0 356.0 404.5 438.1 474.5 513.8
Depreciation 34.2 38.4 36.3 40.9 38.3 41.5 45.0
Operating profit 50.2 38.4 78.2 100.0 107.9 116.9 126.6
Taxes 17.6 13.1 26.2 39.2 42.0 45.5 49.3
Net profit 32.6 25.3 52.0 60.8 65.9 71.3 77.3
Balance sheet
Cash 120.1 105.2 66.8 9.4 35.0 41.7 58.1
Accounts receivable 90.6 99.5 119.5 146.4 93.4 101.1 109.5 2013 2014 2015 2016 2017 2018
Inventory1 468.3 507.6 523.4 656.9 715.7 741.4 766.5 Operating Profit 38.4 78.2 100.0 107.9 116.9 126.6
Other current assets2 20.9 19.3 22.6 20.9 22.7 24.6 26.6 Taxes 13.1 26.2 39.2 42.0 45.5 49.3
Current assets 699.9 731.6 732.3 833.6 866.8 908.9 960.7 Depreciation 38.4 36.3 40.9 38.3 41.5 45.0
Net fixed assets3 332.1 332.5 384.3 347.9 384.6 418.0 448.1 Operating Cash Flow 63.7 88.3 101.7 104.2 112.9 122.2
Total assets 1032.0 1064.1 1116.6 1181.5 1251.3 1326.9 1408.8 Capex 38.8 88.1 4.5 75.0 75.0 75.0
Inc in NWC 24.9 0.2 97.2 29.2 37.9 47.2
Accounts payable 6.0 5.3 4.5 5.0 5.4 5.9 6.4 Free Cash Flow 0.0 0.0 0.0 0.0 0.0 0.0
Wages payable 19.7 22.0 22.1 24.4 26.4 28.6 31.0
Other payables 10.2 15.4 16.6 17.9 19.4 21.0 22.7
Current liabilities 35.9 42.7 43.2 47.3 51.2 55.5 60.1 2013 2014 2015 2016 2017 2018
Net worth 996.1 1021.4 1073.4 1134.2 1200.1 1271.4 1348.7 Inventory days 432.1 436.5 476.3 500.0 500.0 500.0
Receivable days 45.0 48.0 50.9 30.0 30.0 30.0
Capital expenditure 22.0 38.8 88.1 4.5 75.0 75.0 75.0 Cash cycle 477.0 484.5 527.2 530.0 530.0 530.0
Purchases4 140.8 145.2 161.2 185.1 200.5 217.1 235.1 Payable days 13.3 10.2 9.9 9.9 9.9 9.9
NWC 664.0 688.9 689.1 786.3 815.5 853.4 900.6 Financing days 463.7 474.3 517.4 520.1 520.1 520.1
Change in NWC 24.9 0.2 97.2 29.2 37.9 47.2
2012 2013 2014 2015 2016 2017 2018 Benchmark
Revenue growth 2.9% 2.4% 12.5% 15.5% 8.3% 8.3% 8.3% (1.8)%
Gross margin (Gross profit / Revenue) 48.9% 46.9% 51.8% 52.0% 54.0% 56.0% 58.0% 48.9%
Operating margin (Op. profit / Revenue) 6.4% 4.8% 8.6% 9.5% 9.5% 9.5% 9.5% 7.6%
Net profit margin (Net profit / Revenue) 4.1% 3.1% 5.7% 5.8% 5.8% 5.8% 5.8% 2.8%
Return on assets (Net profit / Total assets) 3.2% 2.4% 4.7% 5.1% 5.3% 5.4% 5.5% 2.9%
Return on capital (Net profit / Total capital) 3.3% 2.5% 4.8% 5.4% 5.5% 5.6% 5.7% 4.0%
Receivable days (AR / Revenue * 365) 41.9 45.0 48.0 50.9 30.0 30.0 30.0 21.8
Inventory days (Inventory / COGS * 365) 424.2 432.1 436.5 476.3 500.0 500.0 500.0 386.3
Payable days (AP / Purchases * 365) 15.6 13.3 10.2 9.9 9.9 9.9 9.9 26.9
NFA turnover (Revenue / NFA) 2.4 2.4 2.4 3.0 3.0 2.9 3.0 2.7
HORNIMAN HORTICULTURE
Revised Forecast
Projected Horniman Horticulture Financial Summary (in thousands of dollars)
Free Cash Flow
Cash Cycle
2012 2013 2014 2015 2016 2017 2018
Operating profit 50.2 38.4 78.2 100.0 107.9 116.9 126.6
Net profit 32.6 25.3 52.0 60.8 65.9 71.3 77.3
Cash 120.1 105.2 66.8 9.4 35.0 41.7 58.1
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
$Dollars(inthousands)
Cash vs Profit

13. Manageable Growth
Growth
Inventory
Days
Receivable
Days
Payable
Days
13

14. Thank You
14