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Nelson Nurseries Case Analysis

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240 views3 pages

Nelson Nurseries Case Analysis

Uploaded by

vyakypatil999
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Post Graduate Programme in Management

Batch: 2023-2025

FINANCIAL STATEMENT ANALYSIS (FSA)

Section: FSA-1
Group Members :

NAME ROLL NUMBER


Vaibhav Joshi 2301025
Vyankatesh Patil 2301119
Najam Sayeed 2301349
Neeraj 2301352
Shreeram RP 2301372
Main Reasons for the Working Capital Problems
❖ Seasonal Business Variations: The nursery business experiences significant seasonal
fluctuations, resulting in uneven cash flows. The case highlights that Nelson
Nurseries’operations were greatly impacted by these seasonal changes, with most
revenues and
activities concentrated in specific periods.
❖ High Inventory Levels: Maintaining a diverse range of plant species and ensuring substantial
stock to meet demand increases carrying costs. The current inventory days are 424, compared
to the benchmarked 386 days, indicating inefficiencies in inventory management.
❖ Extended Credit Terms: Offering extended credit terms to customers improved sales but
also increased accounts receivable, tying up cash that could be used for other operational
needs. The accounts receivable (AR) days are 41.9, significantly higher than the benchmarked
21.8 days.
❖ Operational Expenses: The nursery employed 12 full-time and 15 seasonal employees,
leading to high labour costs and other operational expenses that contributed to the cash
crunch.
❖ Unpredictable Weather: Weather unpredictability can lead to sudden drops in revenue and
increased expenses. Christine Barton noted the challenges in maintaining financial health
amid such external factors.
❖ Debt Obligations: The purchase of the business involved significant borrowing.
Christineand Roger used their savings, received a minority-business-development grant,
and took asizable personal loan, all of which added pressure on their cash flow.
❖ Short Payable Days: Nelson Nurseries has payable days of 15.6, which is lower than the
benchmarked 26.9 days. This is due to their credit terms of 30 days, with a 2% discount for
payments made within 10 days, leading to quicker outflows of cash.

Solution for Managing the Cash Crunch Problem


To effectively manage the cash crunch problem, Nelson Nurseries can adopt the following strategies:
1. Improve Inventory Management:
Accurate Demand Forecasting: Use historical sales data and market trends to
predict demand more accurately and adjust inventory levels accordingly.
Reduce Overstocking: Focus on stocking high-demand items and minimize the
variety of low-demand species to decrease holding costs and reduce inventory days
closer to the benchmark of 386 days.
2. Optimize Credit Policies:
Shorten Credit Terms: Negotiate shorter payment terms with customers to
accelerate cash inflows and reduce AR days closer to the benchmark of 21.8 days.
Offer Early Payment Discounts: Provide discounts for early payments to encourage
quicker turnover of receivables.
3. Enhance Cash Flow Monitoring and Management:
Regular Cash Flow Forecasting: Create weekly or monthly cash flow forecasts to
anticipate shortfalls and surpluses, allowing for better planning and decision-making.
Efficient Payables Management: Negotiate longer payment terms with suppliers to
better align outflows with inflows, aiming to extend payable days closer to the
benchmark of 26.9 days.
4. Control Operating Expenses:
Adjust Labor Costs: Assess the necessity of seasonal employees and consider using
part-time or temporary workers during peak seasons to reduce fixed labour costs.
Improve Operational Efficiency: Implement cost-saving measures in daily
operations, such as reducing waste and enhancing process efficiencies.
5. Explore Financing Options:
Short-term Loans or Lines of Credit: Secure a line of credit or short-term loan to
cover seasonal working capital needs without overextending long-term debt
obligations.
Vendor Financing: Negotiate with suppliers for extended payment terms or
financing options for large purchases.
6. Increase Sales and Revenue:
Expand Market Reach: Identify new markets or customer segments to increase sales
volume and reduce reliance on seasonal peaks.
Enhance Marketing Efforts: Invest in targeted marketing campaigns to boost off-
peak sales and improve overall revenue stability.

Justification
These proposed solutions aim to address both immediate and long-term working capital needs.
Enhancing inventory management and optimizing credit policies will directly improve cash flow.
Regular cash flow forecasting and efficient management of payables will provide better visibility and
control over finances. Controlling operating expenses and exploring financing options will ensure the
business can meet its short-term obligations without compromising long-term growth. Increasing sales
and revenue will mitigate the imIpact of seasonal fluctuations and provide a more stable financial
foundation for Nelson Nurseries. By implementing these strategies, Nelson Nurseries can alleviate its
cash crunch and create a more sustainable business model.

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