Horniman Horticulture Essay

2053 Words May 2nd, 2011 9 Pages
Horniman Horticulture Case Study

Current State of Business

The factors looked at such as the profit margin, ROE, and ROA do paint the picture that the current state of the business is good. Revenues have increased on average 10% each year from 2002 to 2005. However during this time cash balances have decreased. Accounts receivable and inventory have increased in the same time span. Cash has decreased from $120.1 to $9.4, a decline of 92% over the four year time span. In the same period Accounts Receivable went from $90.6 in 2002 to $146.4 in 2005, an increase of 62%. Likewise, inventory has increased from $468.3 to $656.9, an increase of 40%. We do know that there are factors behind this increases and decreases, but has the change
…show more content…
This can be done by generating more revenues or by reducing operating costs. Increasing revenues seems complicated in an industry that decreased revenues in 2004 by 1.8% and considering that HH has been aggressively growing for the last years (12.5% in 2004 and 15.5% in 2005). One strategy that can be pursued at this point is increase prices to improve the margins and decrease the number of units sold. Although this seems like a good idea the move implies initially an investment in additional inventory which at this moment and with the given business conditions doesn't seem viable. Reduction in operating costs looks somehow complicated as well because it is stated in the case that the business is running efficiently.

Another alternative that the Brown’s have to manage HH current situation is to reduce the receivables days. This seems doable since HH is way above the industry average, 48 days compared to 21.8 for the industry in 2004. They can also reduce the inventory days in an effort to recover some capital; this also seems like something that HH should be able to do as they have higher inventory days than the benchmark, 436.5 versus 386.3 in 2004. The return on assets has been growing on the past years and is high compared to the benchmark, this is saying that HH is being more efficient every year in the use of assets; this also says that they might require higher capital expenditures going forward.

The obvious alternative that the
Open Document