Nelson Nurseries
Brief introduction to the case
This case captures the problems concerning cash flow and working capital management typical of small, growing businesses. At the end of 2020, Roger and Christine Barton have completed their third year of operating Nelson Nurseries, a $1 million revenue woody-shrub nursery in central Virginia. While experiencing booming demand and improving margins, the Bartons are puzzled by their plummeting cash balance. The case highlights the difference between cash flow and accounting profits, as well as the common negative effects of growth on cash flow. It also provides a forum for instilling appreciation for the relevance of free cash flow to business owners and managers, introducing financial ratio analysis, developing the concepts of the cash cycle and working capital management, and motivating the use of financial models.
Keywords: Cash flow, Economic forecasting, Financial analysis, Working capital management
Suggested Questions
1. What is your assessment of the financial performance of Nelson Nurseries?
- What is going right with this business? What concerns you?
- Where is the cash going?
- Will strong business performance in 2020 improve the cash position?
2. Do you agree with Christine Barton's accounts payable policy?
3. What explains the erosion of the cash balance?
- What are the alternatives for solving the business's cash problem?
4. What do you expect the financial position of the business to be in 2020? Extend the financial statements through 2020, assuming that Roger grows revenue by 30%. Note: To make the balance sheet balance, define cash as equal to (Current liabilities + Net worth) - (Accounts receivable + Inventory + Other current assets + Net fixed assets).
5. In conclusion, what was the problem at Nelson Nurseries?