1. Assess the strengths and weaknesses of the company Horniman Horticulture.
- Horniman Horticulture has a variety of strengths and weaknesses, among them are a mix of quantitative numbers to support the performance as well as qualitative factors to support the performance. We should address the management to start with and their business philosophies. One of the co-owners Bob Brown has a very strong work ethic, which he has achieved through his fathers personal career path to become a foreman of a lumber mill in Southwest Virginia. Bob followed his father’s footsteps and was made supervisor at the lumber mill after his educational side was achieved, among working as a supervisor he was highly …show more content…
Most of Horniman’s suppliers offered the payment term to be a 30-day payment but if the payment was made within 10 days, Horniman would receive a 2% discount (2/10 net 30). It means the suppliers provide Horniman an opportunity to earn 36% interest if there is a bank that provides 2% of interest rate for deposing cash for 20 days. Therefore, it all depends on whether Horniman has enough cash on hand or not.
According to the balance sheet, we can see that Horniman had enough cash on hand to make early payments from 2002 to 2005. Thus, it is possible to say that Horniman enjoyed taking advantage of early payment discount. However, what if Horniman does not posses enough cash? As we calculated the expected financial position in 2006, it is possible that Horniman would suffer from the shortage of cash in the future. In this case, the most important factor is the current mortgage rates because they must borrow some money to pay their suppliers. Thus, in this case, the company need to consider whether they should borrow money from a bank with the current interest rate or make their payment in due day.
5. What can the company do to solve its cash problem?
- As Maggie was concerned about continuous decrease in the Horniman’s cash from 2002 to 2005, (we expect the cash balance would be negative