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In this question, you will analyze the financial health of Ceres Gardening Company in light of profitability, cash flow statement and working capital management and answer the below question.

Question 1 - Please note there is three parts to this one question and total marks for this one question is 10 marks.

Take a look at the cash flow profile of the company, and analyze the cash flow statement step by step through the following questions.please make sure to answer each question and show the working in msexcel if needed

Question 1A: The company's profits have increased by ~30% from 2002 to 2006(E). How much of the profits estimated for the year 2006(E) will translate to the 'cash flow from operations' for the same year? Which of the three categories in the cash flow statement has contributed majorly to the decrease in the 'change in cash' by the company from 2003 to 2006(E)? (1+1 marks)

Please Note: 'Change in cash' is the same as 'Total cash generated'. The (E) beside a year indicates that the figures are expected in the future, i.e. the case study analysis is taking place before the year.)

Question 1B: What is the trend in cash flow from 'operating activities', 'investing activities' and 'financing activities' over the years? Identify at least one reason for the increase/decrease in each of the three categories of the cash flow statement. Explain your answer. (Note: Trend indicates whether the numbers are increasing/decreasing over the years) (2+3 marks)

Question 1C: Given below is the expected cash flow profile of the company for the year 2006(E).Analyze the expected cash flow profile of the company for the year 2006(E) and comment on any 3 of the following factors: 'self-financing of investments', 'funding of investments', 'cash position of the company' and 'free cash flow'. (3 marks).

2006E 1,955 14,471 3,847 20,273 4,347 645 Exhibit 2- Balance Sheet (in $ thousand, some numbers are rounded) At December 31 2002 2003 2004 2005 Assets Cash 705 1,542 1,818 2,158 Accounts Receivable 3,485 4,405 6,821 10,286 Inventories 3,089 2,795 3,201 3,291 Current Assets 7,279 8,742 11,839 15,735 Plant, Property, & Equipment (net) 2,257 2,680 2,958 3,617 Other Assets 645 645 645 645 Land 450 1,750 2,853 2,853 Non-Current Assets 3,352 5,075 6,456 7,115 Total Assets 10,631 13,817 18,295 22,850 Liabilities & Shareholders Equity Accounts Payable 2,034 2,973 4,899 6,660 Current Portion of Long-term Debt 315 352 525 730 Current Liabilities 2,349 3,325 5,423 7,390 Long-Term Debt 3,258 4,400 5,726 7,123 Shareholders Equity 5,024 6,091 7,146 8,336 Total Liabilities & Shareholders Equity 10,631 13,817 18,295 22,850 2,853 7,844 28,117 9,424 649 10,074 8,480 9,563 28,117 Derived Statement of Cash Flows (in $ thousand, some numbers are rounded) For Years Ending December 31 2003 2004 2005 Net Income 1,293 1,279 1,488 Depreciation & Amortization 412 455 557 Change in Accounts Receivable -920 -2,416 -3,465 Change in Inventories 294 -406 -90 Change in Accounts Payable 939 1,926 1,761 Operating Cash Flow 2,019 838 250 2006E 1,534 669 -4,185 -556 2,765 226 -835 -734 -1,215 0 -1,398 0 0 0 Investment in PP&E Investment in Other Assets Investment in Land Investing Cash Flow 0 0 -1,300 -2,135 -1,103 -1,836 -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 2006E 2005 35,088 28,597) 6,491 42,597 35,100 7,497 2,877 3,578 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 General & Administrative 1,999 2,138 2,372 Expense Research & Development 203 203 212 Depreciation & Amortization 3471 412 455 Earnings before Interest & 1,641 2,338 2,408 Taxes Interest 187 349 440 Earnings before Taxes 1,454 1,989 1,968 Taxes 264 696 689 222 232 557 669 2,836 3,018 547 2,289 801 658 2,360 826 Net Income 1,191 1,293 1,279 1,488 1,534 500 0 -500 - 1000 - 1500 Cash at end Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities

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