Girum Arefaynie DDDDDD

Evaluation of Financial and operating performance of floriculture firms in Ethiopia
A research project submitted to school of Graduate studies of

Addis Ababa University in partial fulfillment for the
requirement of M.Sc. degree in Accounting and Finance
BY:
GIRUM AREFAYNIE
Department of Accounting and Finance

Faculty of Business and Economics
Addis Ababa University
June, 2009
Addis Ababa, Ethiopia
Abstract
This project tries to look at the financial and operating performance of floriculture firms
in Ethiopia. Further, it assesses the current export performance of the industry. In order
to address the above broad objective, secondary data in the form of business reports, and
financial statements were collected.Moreover, primary data using unstructured
interviews were collected from the floriculture firms and Ethiopian horticulture
producers and exporters association to support the secoundary data analysis.With the
aforesaid data, different types of ratios such as profitablity, capital structure ,and
liqudity ratios had developed to evaluate the performance of the firms under
consideration.
According to the findings presented in chapter four, floriculture industry is showing a
remarkable export performance for the last five years. However, the unit prices of stem
show a decline from period to period. In the same token, selected flower firms had more
ability of paying their debt in the year 2007 and 2008 than previous years.
Finally, searching new market, creating awareness in domestic market, training for
grower, exporters and retailers are among the recommendations given.
i
Acknowledgements
First and foremost, I would like to thank my advisor Dr. Wollela Abehodie for her
professional guidance, constructive comments and for polite cooperation until the end of
the study. Addis Ababa University, Faculty of Business and Economics, and Department
of Accounting and Finance have also an important role for this project work by providing
financial support.
My deepest gratitude also goes to Ato Tilahun Abebaw, Ato Melkam Endale, Ato Fikade
Asrat, Binyam Alem, Lukas Beyashe, Dawit Zerihun and others for providing me the
necessary assistance and co operation.
I am also grateful to the Ethiopian horticulture producers-exporters association (EHPEA)
and employees of flower farms. A special thanks to Ato Tsegaye Abebe, Ato Abay, Mr
Riyad, and W/rt Azeb for the provision of relevant materials.
Finally, I wish to express my sincere indebtedness to my Father Abebaw Kebede, my
mother Hulunayehu Belay, my brothers and sisters. Their concern, encouragement and
love are an integral part of this research project.
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Date: _________________
Declaration
I here by declare that the project entitled “Evaluation of Financial and operating
performance of floriculture firms in Ethiopia” is my original work and has not been
presented (submitted) by any body; for any degree or diploma in any university and all
the materials used for the project work have been duly acknowledge.
Signature: __________________
Girum Arefaynie
This is to certify that Mr. Girum Arefaynie has completed his project work entitled
“Evaluation of Financial and operating performance of floriculture firms in
Ethiopia” under my supervision. In my opinion, this work is suitable for submission in
partial fulfillment of the requirement for the award of degree of Master of Science in
Accounting and Finance.
Signature: ___________________
Dr Wollela Abehodie
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List of Figures
Figure 4.1: Export volume of flower stems for the year 2004-2008 35
Figure 4. 2: Export value of flower in USD for the year 2004-2008 37
Figure 4.3:Ratio of value to volume of stem for the year 2004-2008 38
Figure 4.4: Cultivated area in hectars for the year 2004-2008 40
Figure 4. 5: Exported volume of flower per hectare for the year 2004-2008 41
Figure 4.6: Trends of current ratio of selected flower firms 43
Figure 4.7: Trends of quick ratio of selected flower firms 45
Figure 4.8: Trends of debt to asset ratio of selected flower firms 47
Figure 4.9: Trends of long term debt to equity ratio of selected flower firms 48
Figure 4.10: Trends of total debt to Equity ratio of selected flower firms 49
Figure 4.11: Trends of net profit margin ratio of selected flower firms 51
Figure 4.12: Trends of operating expense ratio of selected flower firms 52
Figure 4.13: Trends of ROI of selected flower firms 53
Figure 4.14: Trends of return on equity of selected flower firms 54
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List of Table
Table 4.1: Summary of unstructured interview Result 36
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List of Abbreviations
CA: -----------------------------Current asset
CL: ------------------------------Current liability
CR: -----------------------------Current ratio
DR: ------------------------------Debt ratio
EARO: --------------------------Ethiopian Agricultural Research Organization
EHPEA: -------------------------Ethiopian horticulture producers-exporters association
ETB: -----------------------------Ethiopian birr
GDP: -----------------------------Growth domestic product
MoFED: ---------------------- -- Ministry of Finance and Economic Development
PLC: ------------------------------Private limited company
QR: -------------------------------Quick ratio
ROE: -----------------------------Return on equity
ROI: ------------------------------Return on investment
TD: -------------------------------Total debt
TE: -------------------------------Total equity
USD: ----------------------------United States dollar
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Table of contents
Abstract i
Acknowledgement ii
Declaration iii
List of figures iv
List of table v
List of abbreviations vi
Table of contents
Chapter One: Introduction
1.1. Background of the study. 1
1.2. Statments of the problem 3
1.3. Objective of the study 4
1.4. Methodology 5
1.5. Significance of the study 6
1.6.Scope and limitation of the study 7
1.7.Structure of the paper 8
Chapter Two: Litrature review
2.1.Growth of floriculture industry in the world 11
2.2.Growth of floriculture industry in developing countries 12
2.3.Growth of floriculture industry in Ethiopia 13
2.4.Expansion, export trends and employment opportunities of the industry 16
2.5.Basic tools of financial analysis 19
2.5.1. Liquidity ratio 20
2.5.2. Profitability ratio 22
2.5.3. Leverage ratio 25
Chapter Three: Research design
3.1. Research objectives 28
3.2. Methodology 29
3.2.1. Methods of data collection 30
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3.2.2. Methods of Sampling 30
3.2.3. Methods of data analysis and presenting the outcomes 31
Chapter Four: Data analysis and presentation
4.1. Export Performance 34
4.2. Expansion of flower industry 39
4.3. Productivity of flower industry 40
4.4 Employment opportunities in the industry 42
4.5. Liquidity position of selected flower firms 42
4.5.1. Trends of Current ratio of selected flower firms 43
4.5.2. Quick ratio of selected flower firms 44
4.6. Leverage ratio of selected flower firms 46
4.6.1. Debt ratio or debt-asset ratio 46
4.6.2. Long term debt to equity ratio 48
4.6.3. Debt-equity ratio of selected flower firms 49
4.7.Profitability of selected flower firms 50
4.7.1. Net profit margin ratio 50
4.7.2. Operating expense ratio 51
4.7.3. Return on investment (ROI) 53
4.7.4. Return on Equity (ROE) 54
Chapter Five:Conclusions, and recommendations
5.1. Conclusions 56
5.2. Recommendations 59
References 61
Appendices
Appendix A: Summary of financial ratios 63
Appendix B: Income Statment 64
Appendix C: Balance Sheet 69
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9
Chapter One : Introduction
1.1. Background of the study
Floriculture is a young and fast growing industry in Ethiopia. It is also export oriented
industry and generate more foreign exchange to Ethiopia.The history of the Ethiopian
floriculture industry dates back to 1980, 27 years ago, when state farms started to export
flowers to Europe. The Derge regime had established horticulture Development
Corporation, however, ambitious outlook of the regime, absence of private sector green
house, problem of disease and management stands high (Ethiopian horticulture exporters
and producers associations(EHPEA), 2005)).
Regarding cut flower, before year 1999, there were only two private producers and two
state owned enterprises operating in the floriculture industry in Ethiopia. All the
companies’ production has been dominated by open field flowers of Allium and Statice
with very small plots under green house in Meskel flower private limited company (PLC)
(Amin, 2007)
1
In the fiscal year 2005/06 flower export earned about USD 21.7 million in foreign
exchange and flower industry is estimated to have employed above 30000 people.
However, there are concerns that many chemicals and pesticides used not only harm the
environment, but could also be potentially dangerous for the employees (Amin, 2007).
The major factors that have contributed to the development of horticulture industry in
Ethiopia include suitable climate, the altitude, the availability of land, low labor costs and
favorable conditions (EHPEA, 2008). Ethiopia produce a broad range of Flowers,
vegetables, fruits,and herbs. A product of floriculture includes Roses, Gypsophilla,
Carnation, Hypericum, and Eryngium.
As per EHPEA (2008), Ethiopian private sectors started growing and exporting flowers
for the first time in the year 1992. Two domestic companies called “ Ethio Flora and
Meskel Flower” have been exporting for sometime. In the year 1997 Meskel flower
exported roses to the Eroupean market for the first time. Most of the Ethiopian
floriculture products are exported to diffrent countries including Holland, Germany,
Russia, Japan, France, and United Arab Emirates (EHEPA, 2008). This project tries to
assess the financial and operating performance of floriculture firms in Ethiopia.
The remianing discussions in this chapter are arranged as follows: part 1.2 presents the
statement of problems while part 1.3 discuses objectives of the study. In section 1.4 of
this chapter, methodology is discussed followed by significance of the study in section
1.5. Finally, scope and limitations as well as structure of the project are presented in
section 1.6 and 1.7 respectively
2
1.2.Statment of the problems
The core objectives of this project is to evaluate the financial and operating performance
of floriculture firms in Ethiopia. Now a day, floriculture industry is generating foreign
exchange and creates employment opportunities in the country. Besides, many foreign
and domestic investors are emerging in to the sector. In general, this title is selected due
to the following basic points.
 The firms have the problems of supplying their products in the international market
due to transportation problem.
 The industry is new in Ethiopia; hence the firms have difficulty in creating
awareness in the domestic market.
 The product is perishable so that the firms have problem in selling the products in
the planned selling price.
The above points have direct effects on the performance of the industry so, studying
the financial and operating performance and assessing the major problems in the
industry are important for these emerging sector in the country.
3
1.3. Objectives of the study
The main objective of this study is to evaluate the financial and operating performance of
floriculture firms in Ethiopia. Further, this project intends to assess the current export
performance, expansion and productivity of the industry.In order to help achieving the
above broad objectives of the study, the following specific research objectives are
developed.
 Evaluate export performance, expansion and productivity of the floriculture
firms.
 Evaluate the profitability of floriculture firms.
 Evaluate the firms ability to meet their short-term and long-term financial
obligations.
 Identify the factors that affect the profitability and liquidity of the firms.
 Identify weakness and strength
4
1.4. Methodology
Different methods and techniques were used in order to address the objectives
mentioned above in section 1.3. Most of this study was conducted using quantitative
methods of research. In other words, the study mostly used secondary sources of data to
evaluate the financial and operating performance of the floriculture firms. The time
period chosen to conduct this study was between year 2004 and 2008.
Currently there are about 90(ninety) floriculture firms in Ethiopia. The study include only
40 (forty) firms as a sample frame because the rest firms were established very recently
after the year 2004/05. Further, the study used the purposive or judgmental sampling
technique and the sample selection was based on the firm’s willingness to give financial
statements and their location (desired to be in Addis Ababa or near to Addis Ababa).
Twelve (12) firms were included in the sample which were drawn from the sample frame.
The study used different types of ratios, such as profitability, capital structure and
liquidity ratios of the firms, to evaluate their performance. After the necessary data have
been collected, the findings are summarized using narratives, tables and graphs in
reaching into conclusions.
5
1.5. Significance of the study
This project has a varied area of contribution to the different bodies in evaluating
the performance of the firms. It provides base information concerning operating and
financial performance to employees, management, and owners of the firms to
evaluate their strength and weakness. It also provides the base information for
potential investors to take corrective actions regarding the investments in the
industry. The study can serve as important source of reference for future researchers
in financial and operating performance and related studies in floriculture firms.
6
1.6. Scope and limitation of the study
This study focuses on “The Financial and operating performance of floriculture firms in
Ethiopia”. As floriculture industry is a wide industry in Ethiopia, the project did not cover
all the issues. Therefore, the study selected some issues that better measures the
performance of the industry. Unavailability of enough written documents and related
research made in the industry was the other barrier for the completion of this project.
To undertake this study, the researcher had restricted to include the firms only those
which have been established before the year 2004. Moreover, the firms taken as sample
are located in Addis Ababa and near Addis Ababa due to time and money constraint. The
time period covered to conduct this study also limit the study from gathering more
information. The limitations related to financial ratios include unavailability of industry
benchmarks with which the ratios calculated can be compared and the ratios can’t
consider the effect of inflation in to account.
7
1.7. Structure of the project
This paper has been organized in five chapters. Chapter one is an introductory chapter
that includes statement of the problem, objective of the study, methods, significance,
scope and limitations of the study. Chapter two deals with literature review about flower
industry such as its development in the world, developing country, and in Ethiopia. The
industry export trend, expansion as well as theoretical aspects financial ratios are
considered in this chapter
Chapter three consisted of the research design. This chapter provides all detail techniques
used to collect, analyze, and interpret data
Chapter four consisted of the results and outcomes part. This chapter includes current
export performance, productivity, and expansion as well as financial performance of the
flower industry.
Finally, conclusions and recommendations are presented in chapter five.
8
Chapter Two: Literature review
Wijnands (2005) defines horticulture as the industry and science of plant cultivation. It
includes flowers, fruits, vegetable, and trees. Floriculture is a discipline of horticulture
concerned with the cultivations of flower. Flowering plants are largely sold on pots for
indoor use. In general, floral industry is one of the major industries in many developing
and underdeveloped countries. Floriculture as an industry begun in the late of 1800s in
England, when flowers grown on a large scale on the vast estates. In the present day
flora industry is a dynamic, global, fast growing industry, which has achieved significant
growth rates during the past few decades.
Fresh flowers are highly perishable because they maintain only limited life-supporting
processes by taking water up through their stems. Fresh flowers are used for decorative
purposes such as vase arrangements and bouquets at formal events; designs for weddings
and funerals; gifts on occasions such as Mother’s Day, Valentine’s Day, in times of
illness, and at holidays such as Christmas and Easter; corsages and boutonnieres; and
informal displays to beautify homes and public places (Amin, 2007).
9
In order to assess this fast growing industry various techniques could be used. Among
others, operating and financial performance assessment tools may be used. Operating and
financial performance is the process of identifying the financial strength and weakness of
the firm by properly establishing relationships between the items of the balance sheets
and profit and loss account. This strength and weakness are measured by financial ratios.
Foster (1986) concludes that financial ratios are measures that show a proportional
relationship between two factors, such as sales compared to working capital or liabilities
compared to net worth. Often they are used to judge the investment suitability of a
particular company; a firm’s ratios can be compared to its own past performance and/or
to the performance of the industry as a whole. Financial ratios are calculated from the
figures given in the firm's annual financial statement. Financial ratios can be designed to
measure any aspects of the performance of the company. In general financial analysts use
the ratios as tools identify the areas of strength and weakness in the firm.
This chapter presents a review the related literature on the development of horticulture in
general and floriculture in particular. The balance of this chapter is divided in to five
sections. The first section presented the growth of horticulture industry in the world and
this is followed by growth of horticulture industry in developing countries. Section three
discusses the growth of horticulture industry in Ethiopia. Section four reviews expansion,
export performance, the cultivated area and employment opportunities of the sector.
Finally, section five presents basic tools of financial analysis.
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2.1. Growth of floriculture industry in the world
All over the world, the floricultural sector can nowadays be characterized as a sector
experiencing rapid changes. Due to globalization and its effect on income development in
the different regions of the world, per capita consumption in most countries is growing.
Besides, the traditional centers of production (USA, Japan, Italy, The Netherlands,
Columbia), new production centers are developing (Groot, 1998). In Latin America and
Africa, production is increasing very quickly. Also in Asia, countries like India, China,
and Vietnam seem to be moving in the direction of more intensive horticulture. In the
traditional centers, the total area under production remains stable or increase slightly.
Productivity will go up in these centers (Groot, 1998)
In many countries flowers are grown for commercial purposes for domestic markets,
although the size of individual markets or its development are difficult to assess given the
lack of consumption and production data. The main consuming countries (Germany is the
exception) are largely self-sufficient in flowers. Japan and United States are the largest
markets. In 1994, China had close to an estimated 60,000 hectares under cultivation for
flowers, while India had 34,000 hectares (compared to United States at 15,000 hectares,
and Japan and the Netherlands 8,000 hectares.
World cut-flower markets are growing at a current rate of 6-9 percent per year. The total
consumption in year 1985 was about 12.5 billion USD. In year 1990, the consumption
rose to about 25 billion USD. In year 1995, the total world market was about 31 billion
USD. Taking developments in production, imports and economic variables into account,
11
consumption of cut flowers is to be expected to rise to 35 billion USD. In international
terms, the consumption of cut flowers is concentrated in three regions: Western Europe,
North America and Japan. The highest growth is expected in Japan and the USA. The
West European market is becoming saturated. As a result, its cut flower consumption
share is declining. New markets are emerging in the Eastern European countries
2.2. Growth of floriculture industry in developing countries
In past decades, a number of developing countries experienced a rapid growth in their
exports of highly perishable horticultural products to developed high-income countries
(Batt, 2000). In general, this growth can be explained by comparative advantage. Batt
(2000) concludes that labor-intensive cut flowers are grown in low cost countries.
Especially African countries have become very competitive for specific labor-intensive
rose varieties and partly pushed European growers out of the market (Wijnands, 2005). In
most developing countries a well-developed domestic flower market is absent, making
production fully export oriented. Most African flower industries maintain a close link
with the markets in Europe and South America.
The supporting and supplying firms fully rely on imports from developed countries. The
Netherlands and Israel are the main suppliers of flower varieties and advanced
technologies. In addition, the Dutch flower auctions are the leading marketplace for
African flowers (Wijnands, 2005). However, the development of the flower industry is
unbalanced; in the same region one finds countries experiencing a prosperous export
growth as well as countries that show a poor growth or even a decline. For example, in
12
the period 1997/98 to 2003/04 Ecuador showed a strong growth of its share on the world
flower market, whereas neighboring Colombia showed a decline of its share
(Wijnands,2005).
Flower production in Africa is highly competitive to any professional grower in the
world. Especially with regard to the European growers the competition is becoming
fierce. The first cut-flower nurseries were established in Kenya in year 1969, which
originally is a tea and coffee producing country. Nowadays Kenya is the largest African
cut-flower grower, followed by Zimbabwe, Morocco and South Africa. Other promising
countries on the market are Zambia, Malawi, Tanzania and Uganda (Wijnands, 2005).
Bulk flower production is intended primarily for export to the European market, although
there is increasing export to the Asian market as well. The quality of the flowers is very
good at the time of harvesting but the products lose quality due to poor transport
conditions. Africa used to produce primarily carnations, roses and summer flowers.
Nowadays the growing of roses is increasing, because higher prices can be obtained on
the export markets. The assortment is focused on the European market because high
transportation costs oblige growers to strive for a high value per kilogram (Wijnands,
2005).
2.3. Growth of floriculture industry in Ethiopia
The history of the Ethiopian floriculture industry dates back to 1980, 27 years ago, when
state farms started to export flowers to Europe. The first private farm that started trading
13
flowers was the Ethio flora. It cultivated summer flowers but not roses and exported only
to the Netherlands. Recently it has been producing mainly roses and exporting them to
several countries. Another company which entered the industry in the early phase is
Golden Rose Agro farms, which started growing roses in the year 2000. Although a few
companies started their businesses about 10 years ago, it has only been during the last 4
years that the floriculture industry in Ethiopia has started to prosper (Japan Embassy in
Ethiopia, 2008).
The Ethiopian climate, the altitude, the availability of land, low labor costs and favorable
conditions are the major factors for the development of floriculture industries in Ethiopia.
Even though state farms in the rift valley were engaged in the production of flowers on
open plots. Besides, commercial horticulture was started in the early 1980’s and currently
Ethiopia is producing a broad range of flowers, vegetables, fruits, and herbs (EHPEA,
2007).
As EHPEA (2007) showed, though the development of floriculture industry requires
modern production techniques and infrastructure , the benefits derived from the sectors
exceeds their costs and this is enough reason for attracting foreign investors in a big
ways. Products of floriculture includes Roses,Gypsophilla,Carnation,Hypericum, and
Eryngium.Since, year 1992 Ethiopia private sector started to involve in growing and
export flowers for the first time in the country. In the year 1997 Meskel flower exported
roses to the Eroupean market for the first time. Most of the Ethiopian floriculture
products are exported to Holland, Germany, Russia, Japan, France, and United Arab.
14
Floriculture is a relatively new sub-sector to Ethiopia and the production of flowers had
been limited to few varieties of flowers. However, this situation has changed very rapidly
over the past years and nowadays producers in other countries eagerly look at the
developments in Ethiopia, either to be prepared for future competition or to invest in the
country (Joosten, 2007). In the year 2006 Ethiopia was the second largest exporter of
large roses to the Dutch auctions (after Kenya) and the third largest supplier for small
roses (after Kenya and Uganda). The majority of flower growers with an estimated 80
percent of the production area cultivate roses. The first rose producer started around
1997, the second in the year 1999. From the year 2001 onwards, other growers started to
emerge in the industry. Some 20 percent of the production area is under cultivation of
cuttings and bouquet fillers, primarily Hypericum, Carnation, Gypsophila, Allium and
Carthamus (Joosten, 2007).
The horticulture industry, while more established than the floriculture industry, is still in
an early stage of development. The potential in the sub-sector is very immense. For the
year 2004, the targeted volume of exports was about 4,000 tones provided that there is no
adverse weather condition. To date, exported volumes to Europe have been around 2,000
to 2,500 tons (Euro 4 million), mainly of fresh green beans, melon, passion fruit, and
runner beans. As noted above, to date, Ethiopia’s exports to Europe have mainly been of
fresh vegetables, with less comparative advantage in fruits due to the higher weight to
th
value ratio. Thus, among sub-Saharan Africa exporters to Europe, Ethiopia ranks 6 , with
roughly 7 percent of exported volumes to Europe in 2001. The other top-ranking
competitors are (Kenya 45 percent, South Africa 11 percent, Senegal 7 percent,
15
Zimbabwe 7 percent, and Ghana 7 percent). There is also a significant level of exports to
Djibouti through less formal channels, of tomato, onion, orange, banana, and leafy
vegetables (World Bank, 2004)
World Bank (2004) concludes that the horticulture sub-sector is characterized by a few
major factors. First, unlike the case of flowers, fruits and vegetables have a large
domestic market, that is significantly higher than the exported volumes. Second, large
state farms play an important role in this industry and there have been recent initiatives to
forge partnership and collaboration between the public and private enterprises, evidenced
by the presence of both in the association. Third, there is an important parasitical
enterprise that is dominating the domestic distribution channels, Et-fruit. Finally, the
market outlet is not only dichotomized between domestic and exports to Europe, but also
distinguished by significant exports of fruits to the region, namely through the Djibouti
corridor. Thus, while the number of informal or less formal exporters to the region may
be high, those with formalized export roles to the European market are few in number.
2.4. Expansion, export performance and employment opportunities of the industry
in Ethiopia
Agriculture is the main driver of the economy and is a source of income for the majority
of the population. The sector contributes about 50 percent to total GDP, generates about
90 percent of export earnings and supplies about 70 percent of the country’s raw material
requirement for large and medium sized industries that are agro-based. Ethiopia's total
land area is about 1.1 million square kilometers; of which about 73.6 million hectares (66
16
percent) is estimated to be potentially suitable for agricultural production. Out of the total
land suitable for agriculture, the cultivated land is estimated to be 16.5 million hectares
(22 percent). About 96 percent of the cultivated land area is under smallholder farming
while the remaining is used for commercial farming (both state and privately owned). In
fiscal year 2005/06,709.21 million USD was obtained from exporting 624.74 thousand
tons of different agricultural products. The achievement was 102 percent and 91 percent
of the plan respectively. When compared to the year 2004/05 performance, it exceeds by
23 performance in volume and 30 percent in value (MoFED, 2005/06).
In the case of Ethiopia, given the declining export earnings from traditional exports of
coffee in particular, flori-horticulture and other non-traditional, high-value, agricultural
export expansion represents an important area of potential income growth. The
agriculture-development-led-industrialization strategy of the country envisages
significant scope for achieving greater commercialization of smallholder agriculture.
Ethiopia is considered to have the potential to achieve trade gains in these sub-sectors
because of agro-climatic advantages and, in the case of livestock, a large indigenous
stock. This study takes a more holistic view to achieving competitive advantage, as a
function of physical, institutional, infrastructural, and policy factors.. Despite the
potential, the contribution of high-value agricultural exports to the Ethiopian economy is
still weak (World Bank, 2004).
The number of farms producing other cut-flowers than roses is still limited, but growing
at altitudes of around 2,400 to 2,600 meters, the Ethiopian Highlands around Addis
17
Ababa are characterized by high daily temperatures and cool nights, high solar radiation
and annual rainfall of about 1,200 mm. These climatic conditions make the highlands
very suitable for the production of medium- to large-sized rose varieties. Other regions
that are located at lower altitudes of 1,100 to 1,800 meters (Rift Valley, Upper Awash
and Ziway) are suitable for the production of small- to medium-sized rose varieties
(sweethearts and intermediates) and other flowers like summer flowers and cuttings
(Joosten, 2007)
The acreage of flora-farm in Ethiopia is assumed to reach 900 hectares, though the
accurate figure is not available. The export value earned by the flora-farms was 22
million USD in 2006. As the industry grows, the unit cost of a rose has been decreasing.
The unit cost of the Ethiopian rose was more expensive than the Kenyan rose by more
than 35 percent in the year 2002, while it dropped by 15 percent in the year 2004, which
is almost the same price as the Indian rose and even cheaper than the South African, the
Ugandan and the Zambian rose. Floriculture is a labor-intensive industry. Therefore, it
creates many job opportunities in the country, especially for the non-educated/skilled
workers. Several different figures are available, but one shows that permanent
employment for 38,000 people and temporary employment for 46,000 people were
created in the year 2007(Japan Embassy in Ethiopia, 2008).
The discussions so far tried to review the literature on floriculture industry. The following
section focuses on the basic tools of financial analysis.
18
2.5. Basic tools of financial analysis
Financial analysis is the process of identifying the financial strength and weakness of the
firm by properly establishing relationships between the items of the balance sheets and
profit and loss account. Foster (1986) concludes that financial ratios are measures that
show a proportional relationship between two factors, such as sales compared to working
capital or liabilities compared to net worth. Often they are used to judge the investment
suitability of a particular company; a firm’s ratios can be compared to its own past
performance and/or to the performance of the industry as a whole. Financial ratios are
calculated from the figures given in the firm's annual financial statement. Financial ratios
can be designed to measure any aspects of the performance of the company. In general
financial analysts use the ratios as one tool in identifying the areas of strength and
weakness in the firms.
Financial analysis can be time series analysis, cross-section analysis industry analysis and
pro forma analysis. Cross-section analysis is a kind of comparison of one firm with some
selected firms in an industry at the same point in time. This kind of comparison indicates
the relative financial position and performance of the firm (Anthony, 1975).
To determine the financial condition and performance of the firm, its ratio may be
compared with the average ratio of the industry of which the firm is a member. This sort of
analysis is known as industry analysis. Besides, future ratios are used as the standard of
comparison. Future ratios are developed from pro forma or projected financial statements.
The comparison of current or past ratio with the future ratio shows the firms relative
19
weakness and strength in the past and the future. If the future ratios indicate weak financial
position, corrective actions should be initiated (Anthony, 1975).
To evaluate the performance of floriculture firms, time series analysis had been used in this
project. Anthony (1975) defines time series analysis or trend analysis as the process of
comparing the company’s present ratio with the past ratios. It gives an indication of the
direction of changes and reflects whether the firm’s financial performance has improved,
deteriorated or remain constant over time. The analyst should not simply determine the
changes, but, more importantly, he/she should understand why ratios have changed.
There are several types of ratios: liquidity ratios which measure a firm’s ability to meet its
short-term financial obligations; leverage ratios which measure ability to meet long-term
obligations; profitability or operating ratios which measure the success of a company’s
operating performance; activity or efficiency ratios which indicate how effectively a
company uses and controls its assets (Foster, 1986). The following discussions briefly
presents the salient features of liquidity, profitability, leverage, and activity ratios.
2.5.1 Liquidity ratio
A liquidity ratio measures the ability of a business firm to pay its current liabilities as
they become due. It assumes that the current assets are the principal source of cash for
meeting current liabilities. The failure of a company to meet its obligation due to lack of
sufficient liquidity will result in poor credit worthiness, loss of creditors’ confidence or
even a legal tangles resulting in the closure of the company. A very high degree of
liquidity is also bad; idle assets earn nothing. Therefore, it is necessary to strike a proper
20
balance between high liquidity and poor liquidity. The most common ratios which
indicate the extent of liquidity or lack of it are current ratio and quick ratios (Neveu,
1985).
2.5.1.1.Current Ratio
It is computed by dividing current assets and current liability.
CA
CR 
CL
Where, CR= Current ratio
CA= Current Assets
CL= Current Liability
The current ratio is a measure of the firm’s short term liquidity. It measures the availability
of the Birr for every one rupee of current liability. The larger are the current ratios, the less
the difficulty that the company faces in paying its obligations at the right time. In many
cases lenders frequently requires current ratios of the borrowing company to remain at or
above 2.0 times as a condition for grading or continuing the commercial and industrial
loans (Horn, 1989).
2.5.1.2. Quick Ratio
According to Neveu (1985) quick ratio establishes a relationship between quick or liquid
assets and current liability. It serves the same general purposes as of current ratios; but it
21
excludes less liquid assets like inventory and prepaid assets. Thus, the quick ratio measures
the ability of the company to pay its current liability by converting the most liquid assets to
cash. The company with high value of quick ratio can suffer from the shortage of funds
when it has slow paying, doubtful and long duration outstanding debtors. On the other
hand, a company with a low value of quick ratio may really be prospering and paying its
current obligation in time when it has been turning over its inventories efficiently.
Quick Assets
QR 
Current Liability
Where, QR =quick ratio
Quick asset= current assets-(prepaid insurance + Inventory)
2.5.2. Profitability ratio
A company should earn profits to survive and grow over a long period of time. Profit is
essential, but it would be wrong to assume that every action initiated by the managment
of the company should be aimed at maximizing profits, irrespectives of social
consequences. Profit is the difference between revenue and expense over a period of
time. It is the net result of a numbers of policies and decisions. The profitability ratio
provides useful clues as to the effectiveness of a firm’s operations, but the profitability
ratio shows the combined effects of liquidity, assets managements and debt on operating
results. In general the profitability ratio measures the operating efficiency of the
company. Two major types of profitability ratios are calculated as profitability in relation
to sales and profitability in relation to investment (Durker’ 1968). The discussion below
22
shows the theoretical aspects of the profitability ratios.
2.5.2.1.Net profit margin
Net profit is obtained when operating expenses, interests and taxes are subtracted from
the gross profit. The net profit margin ratio is measured by dividing profit after tax by
sales
Income after tax

PM ratio 
Net Sale
Where, PM=profit margin
Net profit margin ratio establishes a relationship between net profit and sales and indicates
management’s efficiency in manufacturing, administering and selling the products. This ratio
measures the overall firm’s ability to turn each rupee sales in to net profit. This ratio also
indicates the firm’s capacity to withstand adverse economic conditions. A firm with a high
net profit margin ratio would be in advantageous position to survive in the face of falling
selling prices, rising costs of production or declining demand for the products. It also can
make better use of favorable conditions such as rising selling prices, falling costs of
production or increasing demands for the product. Such a firm will be able to accelerate its
profits at a faster rate than a firm with law net profit margin.
23
2.5.2.2. Operating Expense ratio
The operating expense ratio explains the changes in profit margin ratio. This ratio is
computed by dividing operating expense to cost of goods sold plus selling expense and
general and administrative expense (excluding interest):
OE
OE ratio 
sales
Where, OE = Operating expense ratio
A higher operating expense ratio is unfavorable since it leaves a small amount of
operating income to meet interest, and dividends.
2.5.2.3. Return on Investment (ROI)
The term investment may refer to total assets or net assets. The funds employed in net
assets known as capital employed. Net assets equal net fixed assets plus current assets
minus current liability excluding bank loan. This ratio measures the company’s
profitability per dollar of investment in the total assets. The ROI/ROA is calculated by
dividing earnings after taxes by total assets.
Net income
ROI 
Total
Assets
24
2.5.2.4.Return on Equity (ROE)
According to Benton (1987), common or ordinary shareholders are entitled to the residual profit
Net income
ROE 
Equity
A return on shareholders’ equity is calculated to see the profitability of the owners’
investment. ROE indicates how well the firm has used the resources of the owners.
2.5.3. Leverage Ratio
The short term creditors, like bankers and suppliers of raw material are more concerened
with the firm’s current debt-paying ability.On the other hand, long term creditors, like
debenture holders, financial institutions are more concerened with the firm’s long-term
financial strength. In fact a firm should have a strong short as well as long term financial
position.To judg the long term financial position of the firm, financial leverage or capital
stracture ratios are calculated. The capital structure measures the extent to which
companies finance itself with debt as opposed to equity financing. The long-term
financial position is measured commonly by two financial variables (Horn, 1989). As
shown in the following discussions.
25
2.5.3.1 Debt-Equity ratio
This ratio expresses the relationships between the amount of the total assets of the
company financed by creditors (debt) and owners (equity).These reflect the relative
claims of creditors and owners against the total asset of the firms.
TD
DR  Where, DR= Debt ratio
TE
TD= Total debt
TE= Total equity
2.5.3.2 Debt Ratio
Debt ratio may be used to analyze the long term solvency of the firm. The firm may is
interested in knowing the proportion of the interest bearing debt in the capital structure.
In general debt ratio measures the extent to which the total assets of the company have
been financed using borrowing funds.
Total Liability
Debt Ratio 
Total Assets
In general the review so far revealed that floriculture industry is a relatively new sub-
sector to Ethiopia and the production of flowers had been limited to few varieties of
flowers. However, this situation has changed very rapidly over the past years.
26
Floriculture is a labor-intensive industry and creates many job opportunities in the
country. The sector provided permanent employment for 38,000 people and temporary
employment for 46,000 people in the year 2007.
The acreage of flora-farm in Ethiopia is assumed to reach 900 hectare. The export value
earned by the flora-farms was 22 million USD in 2006. These show that only the export
performance, expansion, employment opportunities and the coverage of the cultivated
area have been studied. There appears to be no evidence on the financial and operating
performance of the industry. Hence, in this study the financial and operating performance
of flower industry had analyzed in addition to examining the current status of export,
employment opportunities and expansion.
27
Chapter Three: Research design
The previous chapter attempted to review the literature related to the floriculture industry
and tools of financial analysis. This chapter tries to present the research design. The
chapter is organized as follows: the objectives of the study are presented in the first
section. Then this is followed by a discussion on the research methodology in section
two.
3.1. Research objectives
As presented in the first chapter, this study has a broad objective of evaluating financial
and operating performance of floriculture firms in Ethiopia. Besides, the study intends to
assess the current export performance, Expansion and productivity of the
industry.Moreover, specific objectives of the study includes.
 Evaluate export performance, expansion and productivity of the floriculture
firms.
 Evaluate the profitability of floriculture firms.
 Evaluate the firm’s ability to meet its short-terms and long-terms financial
obligations.
 Identify the factors that affect the profitability and liquidity of the firms.
 Identify strength and weakness of the industry.
28
3.2. Methodology
In this section, the details of all technical matters have explained. Methodology includes
methods of data collection, sampling, analyzing, and presenting the outcomes in the
report has been presented in this section.
Different methods of research can be used to address a research questions.These methods
include quantitative, qualitative and mixed methods. According to Creswell(2003)
quantitative method is a method that includes closed ended information such as that
found on attitude, performance instruments. Sometimes quantitative information is found
in document such as censuse records , financial statments, managment reports. In
contrast, qualitative method consists of open ended information that the rasearcher gather
through interviews with particpants. The collection and analysis of both qualitative data
and quantitative data is said to be mixed method research.
.
In order to address the research problem noted earlier, the study has used quantitative
methods of research which is supported by quantitative method. In other words, this
study used secondary source of data. Secondary data are data which already exist in the
company and include annual reports of the company, broacher, documents, and
magazine. Secondary source can usually be found more quickly and cheaply (Ademassie,
2002/03). However, it has its own limitation. The most important is that the information
often will not meet the researcher specific needs because these data has been collected by
someone else for their purpose rather than ours. In addition, primary data was used to
support secondary sources of data. The time period chosen to conduct this study is from
the year 2004 to the year 2008.
29
3.2.1. Methods of data collection
The study used different methods to collect secondary and primary data. Secondary data
has been collected from the sample firms and Ethiopian horticulture producer and
exporters association. Financial statements were collected from twelve companies and the
export performance of the industry has been collected from the associations. To support
the secondary sources of data, primary data was collected using unstructured personal
interview. Unstructured interview is a customized interview with no specific questions or
orders to be discussed; usually starts with specific topics. Reasons for selecting these
methods are it require less man power, less expensive and obtain information divest from
primary sources. Moreover, it gives the chance for respondent to raise as many points as
they can. This form of interview has made with Ethiopian horticulture producers and
exporters association and managers of selected firms. Using the data collected with the
help of the above methods, the researcher has identified accounting ratios appropriate for
evaluating the performance of the firms.
3.2.2. Methods of Sampling
Sample is the part of population which can represent the total population. Selecting a
sample is fundamental for research study because taking the total population is
impossible due to time constraint, costs and it requires high man power to manipulate all
the tasks of the study. Besides, researcher may get infinite population in the study.
30
Presently, there are around ninety (90) floriculture firms in Ethiopia. However, the study
covered only forty (40) firms that have been established before the year 2004 for the
reason that the study was conducted from year 2004 to 2008.In other words, the sample
frame includes only those forty (40) firms in evaluating the financial and operating
performance of the industry and the sample is drawn from these sample frames. The rest
fifty (50) had established with in the last four year so that it has no organized and strong
financial statement that can explain the industry. Besides, most of these fifty firms have
started exporting their products in the last two and three years.
The sampling has been used purposive or judgment sampling for which the sample is
selected based on their willingness to give financial statement and their location (desired
to be in Addis Ababa or around Addis Ababa). These are due to financial and time
constraints to collect and analyze the data. Hence, twelve (12) firms were included in the
sample that can be drawn from the sample frame to conduct the study.
3.2.3. Methods of data analysis and presenting the outcomes
This section summarizes the methods used to analyze the data and describes data
handling and preliminary analysis used. The process of analysis began after the data have
been collected, prepared and summarized. During the analysis stage several interrelated
procedures have been used.
The study used different types of ratios in the analysis stages. Profitability, operating
efficiency, capital structure, and liquidity ratios are among the ratios used to evaluate the
31
performance of the firms considered. These ratios and their respective formulas are
presented as follow:
Profitability
Return on sales(Profit margin) Profit/Sales
Return on equity(ROE) Profit/equity
Return on investment(ROI) Profit/total asset
Operating Expense ratio Total Expense/Total sales
Capital Structure
 Debt Equity ratio Total Debt/Total Equity
 Debt ratio Total debt/Total Assets
Liquidity
 Current ratio Current asset/Current liability
 Quick ratio Quick asset/Current liability
The Export value to the volume of stems has been calculated to measure the trends of
export performance with in the five years (from 2004 to 2008) in addition to accounting
ratio analysis since export is the major source of the revenue for the Ethiopian flower
industry.
Va E
i.e. x 
Vo E
Where, x = the value of export per a single stem for specific year.
Vo E = Volume of export per year.
Va E = Value of export per year in USD
32
Besides, the productivity of the firm has been measured to evaluate whether the firm is
efficient or not. This can be done by determining the number of stems produced per a
single hectare for a specific year.
A
i.e. Y 
B
Where, Y=Numbers of stems produced per hectare per year.
A=Total number of stems exported per year
B=Total number of hectares used in flower production per year.
The project is presented in report form since the study has a nature of descriptive
research. The results and findings are also presented and interpreted using graphs and
charts. This selection is due to its simplicity and easy to understand by the reader.
Moreover, the accounting ratios are best explained with graphs, tables and charts.
33
Chapter Four: Data analysis and presentation
This chapter presents the analysis of financial and operating performance of floriculture
firms in Ethiopia. It begins by evaluating export performance of the sector in section 4.1
and followed by the industry expansion, productivity and employment opportunity in
sections 4.2, 4.3 and 4.4 respectively. Finally, the outcomes of financial ratios including
liquidity ratio, capital structure and leverage ratios are discussed in sections 4.5, 4.6, and
4.7 respectively, of this chapter.
All the analysis is based on secondary data together with primary data collected from the
managers of 12 firms and Employee of Ethiopian horticulture producers and exporters
associations using unstructured interview.
4.1.Export performance
According to EHPEA (2008), the flowers exported from Ethiopia have high quality
compared to other countries' product, so that there are high markets for them. Besides, the
supply of cut flower from Ethiopia is far below the demand for it in the international
market. In this section the performance of export in terms of volume, value and value per
volume has presented.
34
4.1.1. Volume of flower export
The volume of frower export is increasing rapidly every year. This fact is presented in
the following graph.
Figure 4.1: Export volume of flower stems for the year 2004-2008
1600000
1400000
n
i 1200000
"0
0 1000000
0 800000
"
e s
mm 600000
u e
l t400000
o s
v 200000
tr
o 0
p
x 2004 2005 2006 2007 2008
E
G.C G.C G.C G.C G.C
Year
Source: Ethiopian horticulture producers and exporters assosiation (EHPEA)
From figure 4.1 above one can see how fast flower export is growing over time. Exports
of flower which was only 32 million stems in the year 2004 reached to about 1.5 billion
stems in the year 2008. As shown above in the graph the export volume is increasing
above 50 percent every year.
35
According to the interview result indicated in table 4.1 below, 100 percent of the
respondent conclude, that this remarkable performance of the export arises due to the
incentive packages of government including favorable land lease rate, favorable credit
access, exemptions and tax holidays, expanding infrastructural facilities. Besides, 58.33
percent and 41.67 percent of the respondent conclude that law labor cost and favorable
whether condition respectively are other contributing factors for this remarkable
performance.
Table 4.1. Summary of unstructured interview result. No. of Response

Questions Response Respondent rate
Reasons for remarkable performance of  Government incentives 12 100%
the flower firms  Law labor cost available in the country 7 58.33%
 Favorable whether condition 5 41.67%
What are those government incentives?  Favorable land lease rate 11 91.67%
 Favorable credit access 10 83.33%
 Exemption and tax holiday 11 91.67%
 Duty free imports of raw material
including chemicals and fertilizers 6 50%
Reasons for declining unit price of  Financial crises 12 100%

stem  Entrance of new competitors in the
international market 5 41.67%
Challenges that face the firms  Transportation problem 11 91.67%

 Lack of education and experience
related to floriculture 7 58.33%
 Unavailability of same raw material
including chemical and fertilizers in
domestic market 6 50%
 It is perishable 8 66.67%
Source: Results of unstructured interview and own computations
The above table indicates the results of unstructured interview made with 12 managers of
the selected firms.
36
4.1.2. Value of flower export in USD
Ethiopia’s flower export performance in the past five consecutive years has shown a great
increase in foreign exchange revenue and the change from year 2004-2008 is presented as
follow.
Figure 4.2: Export value of flower in USD for the year 2004-2008
200000
180000
D
S 160000
U
in 140000
" 120000
0
0
0
" 100000
e 80000
u
l
a 60000
V
tr 40000
o
p
x 20000
E 0
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Year
As shown above in the figure 4.2, the sector’s performance of generating foreign
currency is rapidly growing. The revenue that was only 5.5 million USD in the year 2004
is increased to 178 million USD in the year 2008. This dramatic performance of the
sector during the year 2004 -2008 indicates the industry's unexploited potential in
securing the foreign exchange the country requires. It also gives an indication that the
export sector of the country is diversifying into non-traditional items.
37
4.1.3. Value per volume of flower export
The ratio of value per volume of flower export measures the performance of the sector in
the international market and this can be calculated by dividing total value of revenue per
year to total voume of stems per year. The result is presented in the following figure.
Figure 4. 3:Rratio of value to volume of stem for the year 2004-2008
0.2
0.18
Export value in USD / Stem
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Year
Source: The combination of figure 1 and figure 2
As shown in the figure above, the value of a single stem is declining from year to year.
The value that was USD 0.172 per stem in the year 2004 declined gardually and
reached to USD 0.12 per stem in the year 2008. As indicated in table 4.1. 100 percent
of the respondent decided, this decline is the result of global financial crisis. Moreover,
38
according to 38.5 percent of the respondent’s conclusion, the decline is due to the new
entrance of competitors in the market that create the shortage of cargo flight. This in
turn leads to inability of supplying fresh flower in the international market.
4.2. Expansion of flower industry
Ethiopia became an important flower export nation within five years. As shown in figure
4.4 below, the area of flower production in Ethiopia was 150 hectares in the year 2004,
and it becomes 1200 hectares in the year 2008. The Ethiopian government has played an
important role in the uprising of its country as a flower producer nation by providing
various incentives. According to table 4.1, 91.67 percent, 83.33 percent, 91.67 percent
and 50 percent of respondents identify government’s incentives as favorable land lease
rate, favorable credit access, exemptions and tax holidays for five years, duty free imports
of raw materials respectively.
39
Figure 4.4: Cultivated area in hectars for the year 2004-2008
1400
s
r 1200
a 1200
t
c
e 1000
H
n
i 800 800
a 645
e
r 600
a
d 400
e
t 345
a
iv
tl
200 150
u 0
C
2004 G.C2005 G.C2006 G.C2007 G.C2008 G.C
Year
4.2.Productivity of the flower industry
This section has seen the trends of generating power of each hectare for specific period of
time. It has been done by determining the total volume of flower exported from a single
hectare for that year.
40
Figure 4.5: exported volume of flower per hectare for the year 2004-2008
Productivity
1,400,000
1,250,000
1,200,000
1,000,000
Value 800,000
exported per 597,681
hectare 600,000
400,000
288,372
213,334 240,580
200,000
0
2004 2005 2006 2007 2008
G.C G.C G.C G.C G.C
Year
Source: The combination of figure 2 and figure 4
As shown in the figure above the productivity of the land is increasing. The volume of
flower that was 213,334 stems per a single hectare in the year 2004 reached to 1,250,000
stems per hectare in the year 2008. This figure shows an indication of how the industry is
productive.
41
4.4.Employment opportunities
Floriculture is a labor-intensive industry. Therefore, it creates many job opportunities in
the country, especially for the non-educated/skilled workers. According to EHPEA
(2008), in the year 2008, above 100,000 workers are employed in the sector. This shows
that, the industry is contributing a lot for the development of the country.
The discussion so far examined the export performance, the productivity, expansion and
employment opportunities of the entire industry. In the following discussion the results of
the study with respect to the financial and operating performance of selected flower firms
are presented.
4.5. Liquidity position of selected flower firms
A liquid asset is a one that trade in an active market and hence can be easily converted in
to cash at the market price and a firm’s liquidity position deals with how the firm be able
to pay its debts as they come due. Liquidity ratio assumes that current asset is the
principal source of cash for meeting current liabilities and current portion of long term
loan. In this section the current ratio and quick ratio of flower firms considered in this
study are presented.
42
4.5.1. Current ratio of selected flower firms
The current ratio of flower firms considered in this study presented below is for the year
from 2004 to year 2008
Figure 4.6: Trends of current ratio of selected flower firms
Current ratio
2.5
2 2.01
Ratio(CA/CL) 1.85
1.77
1.5 1.55 1.55
0.5
0
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Years
Source: Financial statements of selected firms and own computation.
From figure 4.6, the current ratio of firms considered in the study indicates that the firms
has 1.55 Ethiopian birr (ETB) in current asset for each ETB of current liability in the year
2004 and it show increment up to the year 2006. This indicates that the current assets
were more capable to meet its current liability as it mature in the year 2006 than year
43
2004.However; the current ratio declined to 1.55 in the year 2007 and it showed dramatic
change in year 2008 which was 2.01.
In general, this current ratio indicates that the firms ability to pay their debt is better in
year 2008 than the early years under consideration. It is because; the firms are currently
earning more revenue from flower export as it is shown in the export performance and
purchasing most of the imported raw material in cash due to available cash earned from
export. Hence, the current liability is declining from year to year and current asset of the
flower firms considered is moving in the opposite direction. This change results in
growing the current ratio of the selected flower firms.
4.5.2. Quick ratio of selected flower firms
It serves the same general purpose as that of the current ratio but more stringent since it
exclude less liquid current assets. The quick ratio of flower firms considered is presented
in the following diagram for the year 2004 to year 2008.
44
Figure 4. 7: Trends of quick ratio of selected flower firms
Quick ratio
1.2
1.08
1 1
Quick
0.8 ratio
0.6 0.59
0.48
0.4 0.43
0.2
0
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Years
Source: Financial statements of selected firms and own computation
As shown in the figure 4.7 above, the quick ratios of the flower firms under consideration
were 0.59, 0.45 and 0.48 in the year 2004, 2005 and 2006 respectively. It became 1 and
1.08 in the year 2007 and 2008 respectively. The year 2004, 2005 and 2006 quick ratio
implies that the quick assets were not enough to settle the entire current obligation unless
the industry converts the non quick current assets to the extent they provide cash that is
enough to pay the remaining cents for each ETB of current liabilities. The quick ratio of 1
times and 1.08 times, on the other hand, implies that the company has 1 birr and 1.08
ETB of quick assets for each ETB of current liabilities in the year 2007 and 2008
respectively. Therefore, the firms considered in the study have better ability of paying
45
their liabilities in the year 2007 and 2008 than the earlier years. Considering the above
two figures the current ratio was increasing and the quick ratio was moving in the
opposite directions. It is because, the non quick assets including debtors balance,
inventory of chemicals and fertilizers have increased as shown in the appendix C and the
quick asset of the firms have decreased. This affects these changes.
4.6. Debt management or leverage ratio of selected flower firms
These ratios measure the extent to which a company finances itself with debt as opposed
to equity financing. The industry leverage position is better explained using debt ratio,
long term debt to equity ratio and debt-equity ratio. The discussion below presents results
of the study in respect of these indicators of leverage
4.6.1. Debt ratio or debt-asset ratio
This ratio measures the extent to which the total assets of the company have been
financed using borrowed funds. The debt ratio of flower firms considered in this study is
presented in the following diagram.
46
Figure 4.8: Trends of debt to asset ratio of selected flower firms
Debt to asset ratio
72%
72%
70%
68%
66% 66%
66% 65%
Ratio
64% 63%
62%
60%
58%
2004 G.C2005 G.C2006 G.C2007 G.C2008 G.C
Years
As indicated in the figure 4.8 above, 65 percent and 72 percent of the total assets of
flower industry were financed by funds secured in the form of current and long term
liabilities for the year 2004 and 2005 respectively. In other words, the debt asset ratio of
65 percent in the year 2004 for selected flower firms can be interpreted as one ETB of
investment in the industry’s asset was made up of the combination of about 65 cents of
the creditor’s fund and the remaining 35 cents of the shareholder’s funds.
The capital structure of the firms considered in this study is better in the year 2005 than
other years since the owner’s need higher debt (leverage) ratios because the cost of
47
borrowing money is usually less than the cost of owner’s fund(Neveu,1985). However,
the ratio becomes law in the later years.
4.6.2. Long term debt to equity ratio
This ratio measures the extent to which long term financing sources are provided by
creditors. This ratio is computed by dividing long term debts by shareholders’ equity.
Figure 4.9: Trends of long term debt to equity ratio of selected flower firms
Long term debt to equity ratio
160%
160% 146% 144% 145%
140%
120% 109%
100%
LTD TO Equity
80%
ratio
60%
40%
20%
0%
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Year
Source: Financial statements of selected firms and own computations
As shown in figure 4.9, the long term debt to equity ratio of 109 percent has been
achieved during the year 2004 can be for a single ETB of owner’s equity. In other words,
48
the long term financing of 2.09 ETB was made 1 ETB from shareholder’s equity and 1.09
ETB of long term debt. It has a slight increment in the year 2005 and slow down then
after. Hence the trends of long term debt to equity ratio is in favorable condition since the
cost of borrowing is less than the cost of investing owner’s equity.
4.6.3. Debt-equity ratio of selected flower firms
This ratio expresses the relationship between the amount of the total assets of the industry
financed by creditor (debt) and owner’s (equity). Thus, this ratio reflects the relative
claims of creditors and shareholders against the total assets.
Figure 4. 10: Trends of total debt to Equity ratio of selected flower firms
Trends of total debt to Equity ratio
2.5
2.37
2.19
2
1.89 1.91
1.84
1.5
Ratios
0.5
0
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Years
49
The debt equity ratio of 1.84 for the selected flower firms in the year 2004 indicates that
the creditors have provided about 1.84 ETB in financing the assets of the firms for every
single ETB contributed from shareholders’ equity. The debt equity ratio has been
increased in to 2.37 in the year 2005. However, it has decreased to 2.19 and 1.89 in the
year 2006 and 2007 respectively. In the same token, the debt equity ratio of selected
flower firms is 1.91 in the year 2008. As it is discussed earlier, the industry was good in
the year 2005 than other year since the cost of debt is less the cost of owner’s equity. The
reduction of debt to equity ratio is due to the decrease in the total liability and the
increase in the retained earnings.
4.7. Profitability of selected flower firms
Durker (1968) defined profitability as the net result of a numbers of policies and
decisions. The profitability ratio provides the overall performance of the company and its
management. In this section the net profit margin, operating expense ratio, return on
investment and return on equity of the flower industry have been presented.
4.7.1. Net profit margin ratio
The net profit margin on net sales measures the profitability of the company on a per
ETB basis of net sales. This ratio is calculated by dividing net income by net sales of the
company. The net profit margin ratio of the flower firms considered in this study is
shown follow in the figure 4.11 below for the year 2004 up to year 2008.
50
Figure 4.11: Trends of net profit margin ratio of selected flower firms
Net Profit Maregin ratio
29.30%
30.00%
23.67%
25.00%
20.75%
20.00% 16.39% 17%
Percentage 15.00%
10.00%
5.00%
0.00%
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Year
The net profit margin ratio of the flower firms considered in the study can be interpreted
in such a way that firms had earned 16.30 percent in the year 2004. As shown in the
figure 4.11 above, the net profit margin had a dramatic growth for the last five years and
reaches to 29.30 percent in the year 2008. According to table 4.1 of interview result, the
government incentives including favorable tax rate, credit access, exemption and tax
holiday, and duty free imports of raw materials are reasons as per respondents of 91.67
percent, 83.33 percent, 91.67 percent and 50 percent respectively.
4.7.2. Operating expense ratio
The operating expense ratio is a measure used to assess the total operating expense in
relative to in relations to the total sales during the period. The lower operating expense
51
ratio is desirable for the firms and it is an indication of management’s ability in
controlling or minimizing the operating expense (Zeleke, 2007).
Figure 4. 12: Trends of operating expense ratio of Ethiopian flower industry.
Trends of operating exp. ratio
83.61% 83%
84.00%
82.00%
80.00% 79.25%
78.00% 76.34%
76.00%
Percentage 74.00%
72.00% 70.70%
70.00%
68.00%
66.00%
64.00%
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Year
Figure 4.12 indicates the trends of operating expense ratio for the year 2004-2008. The
operating expense ratio of flower firms considered in this study has declined for the last
five years. The operating expense ratio that was 83.62 percent in the year 2004 has
declined to 70.70 percent in the year 2008.In other word, from the total sales 83.62
percent is expensed for generating the net profit margin of 16.28 percent in the year 2004
and 70.70 percent of the total sales was expensed to generate the net profit margin of
29.30 percent in the year 2008. This indicates that, the industry’s ability in controlling the
operating expense is increasing from period to period.
52
4.7.3. Return on investment (ROI)
ROI measures the company’s profitability per birr of investment in the total asset. This
ratio is calculated by dividing net income by the total assets invested and the return on
investment of Ethiopian flower industry is presented in the following diagram.
Figure 4.13: Trends of ROI of selected flower firms
Trends of return on investment for the industry
25.00%
20.00% 19.80%
Percentage
17%
15.00%
11.74%
10.00%
7.60% 8.24%
5.00%
0.00%
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Year
From the figure 4.13 indicated above, flower firms considered in this study have
generated 7.60 percent or about 7.6 cents in the form of income out of each ETB invested
in their total assets during the year 2004.Return on investment has been increased in a
faster way for the last five years and reached a total of 19.80 percent in the year 2008. An
improvement is achieved from period to period and it is an indication of effective
utilization of resources by the industry.
53
4.7.4. Return on Equity (ROE)
According to Horn (1989) the ratio of net income to owner’s equity measures the return
on the return on equity or the rate of return on owner’s equity investment. The trend of
the return on equity flower firms considered in this study is presented in the subsequent
diagram.
Figure 4. 14: Trends of return on equity of selected flower firms
Trends of return on equity for the industry
60.00% 57.55%
48.81%
50.00%
40.67%
40.00%
Percentage 30.00% 27.33%

21.65%
20.00%
10.00%
0.00%
2004 G.C 2005 G.C 2006 G.C 2007 G.C 2008 G.C
Year
The selected flower firms have generated 21.65 percent or about 22 cents for every ETB
of shareholder’s equity in the year 2004. The return on equity has increased dramatically
for the last five years and reaches to 57.55 percent or about 58 cents for every ETB of
shareholder’s equity in the year 2008.
54
Other finding from the unstructured interview shows challenges of the firms under study.
As indicted in table 4.1 above 91.67 percent, 58.33 percent, 50 percent, and 66.67 percent
of the respondents noted the challenges as transportation problem, lack of education and
experience in flower related fields, unavailability of raw materials like chemicals and
fertilizers respectively.
To summarize, the overall performance of the selected flower firms have shown
improvement for the last five years considered in the study. In addition, their export
performance, productivity, and expansion of the firms have increased. Similarly, the
liquidity ratio, and leverage ratio of the firms shows improvements. The operating
expense ratios have declined while net profit margin moves in the opposite direction for
the last five years.
55
Chapter Five: Conclusions and recommendations
The overall objective of this study was to evaluate and analyze the financial and
operating performance of floriculture firms in Ethiopia. Besides, the evaluations of export
performance, productivity, and expansion of the flower firms have been considered. This
chapter presents the conclusion drawn from the analysis and recommendations.
5.1. Conclusions
As the Ethiopian government makes it easy for flower companies to obtain land and start
up loans, floriculture is one of the fast growing industries in Ethiopia. It shows the
incredible performance of exporting flower from period to period. The flower exported
from Ethiopia has high quality and demand in the international market. The volume of
flower export is increasing rapidly because the export volume amount 32 million stems in
the year 2004 has been amplified to 1.5 billion stems in the year 2008.
Ethiopian flower industry is playing an important role in generating foreign currency. In
the year 2004 the industry generates USD5.5 million and USD178 million in the year
2008.
56
However, the unit price of stem has been declined from period to period. In the year 2004
one stem was sold in the international market for average price of USD0.172 has declined
to USD0.12 in the year 2008. This decline is due to the entrance of a new competitors
and global financial crises because customers prioritize in meeting their basic needs
instead of buying flower.
The area of production has also increased from 150 ha in the year 2004 to 1200 ha in the
year 2008. The Ethiopian government has a vital role in upraising the expansion by
providing incentives including favorable land lease rate, favorable credit access,
exemption and tax holiday, and expanding infrastructural facility. Besides, the
productivity of land of the industry has been increased in the last five years. The volume
of flower that was 213,334 stems produced in a single hectare in the year 2004 has
amplified to 1,250,000. Moreover, the industry creates employment opportunities for
above 100,000 workers in the year 2008.
The trends of liquidity position of the industry have shown slight improvement for the
last five years. The current ratios of the firms have increased from year 2004 to year 2006
and show a decline in the year 2007. However, the current ratio has shown the strong
increment in the year 2008. The liquidity position can also be explained by quick ratio.
The quick ratio of 0.59, 0.43.and 0.48 for the year 2004, 2005 and 2006 respectively has
been changed to1.00 and 1.08 in the year 2007 and 2008 respectively. In other words, the
firms has ability to pay its current liability better in the year 2007 and 2008 than others
years. This shows the selected flower firms liquidity position has improved in the year
2007 and 2008.
57
The leverage ratio measures the extent to which the selected flower firms finances its
assets with debt opposed to equity financing. The capital structure of the industry was
good in the year 2005 that was 72 percent since the cost of borrowing is less than the cost
of owner’s fund and this ratio has been declined in the rest consecutive years. Because
the long term debt was matured in the year 2006, 2007 and 2008.
The long term debt to equity ratio 109 percent has been increased to 160 percent in the
year 2005. This also explains the favorable condition that was in the year 2005. However,
it has been declined in year 2006, 2007 and 2008 to 146 percent, 144 percent and 145
percent respectively. The debt to equity ratio of the industry has also declined in the year
2006, 2007 and 2008. This decline in debt to equity ratio is due to the decrease in the
total liability because the long term liability has matured and paid in the year 2006, 2007
and 2008.
The trends of the profit margin of the industry have shown the dramatic growth for the
last five years. In the same token, the operating expense ratio has been declined. This
indicates the industry’s ability to control the operating expense and these in turn leads to
the profitability of the industry. The return on investment and the return on equity have
been increased for the last five years. It also tells the industry’s ability in its effective
utilization of resources.
58
5.2. Recommendations
The analysis of this study shows the flower firms overall performance has improved for
the last five years. To continue with this performance and improve the profitability even
more, the following points are recommended to the flower producers, exporters,
government and other responsible bodies. .
1. The price of the flower per stem is currently declined. Therefore, the flower firms
should search new market and diversify.
2. Flowers in Ethiopia are luxury items that not many people can afford. Also,
Ethiopians are not very familiar with the culture of giving flowers. They rather
buy a kilo of oranges and bananas than a bunch of flowers. In general, the
domestic market of flower products are insignificant, therefore, a promotion
should be made to create people’s awareness about the use of flower.
3. Ethiopia lacks enough manpower that has advanced education and good
experience in floriculture. This obstacles the industry from producing at its full
capacity, and farms have foreign manpower that increase its cost. Therefore, more
education in the flower sector should be given. Besides, training must be given for
growers, exporters and retailers.
4. The flower products are sold in the auction market at Alsemar, Holland, all farms
should have experts who can predict the good price of the flower.
59
5. The Ethiopian government should continue encouraging investors, offering them
a five-year tax holiday and duty-free import of machinery and raw materials.
6. Finally, future researchers should give emphasis on the effect of cargo flight in
flower export, new entrant on the profitability, perishability behavior of the
products on the supplying to international market.
60
References
Admassie, Assefa, 2002/03, Introduction to Research Methods for Economics,
Addis Ababa University
Amin Tekle, 2007, The Role of Non- Traditional Agriculture products to the
Development of the country: Case study in cut flower, unpublished
Anthony, R.N. Reece,J.S.,1975, Management Accounting Principles, 2nd edn
Taraporewala.
Batt, P.J. 2000, Strategic lessons to Emerge from an Analysis of Selected.
Flower Export Nations, Journal of International Food & Agribusiness
Marketing. 11(2000), 3, p41-73
Donald.R.Cooper and Pamela.S.Schindler, 2006, Business Research Methods,
9,th Mc Graw-hill publishing.
EHPEA, 2005, Brochure, Ethiopian Horticulture producers-exporters
association.
association.
association.
Engel B.J, James, 2005, The Financial and Operating performance of
Privatized firms in Austria, Unpublished.
Eugene F.Bringham, 2001, Fundamentals of financial management,9th edn,
South western publishing, USA.
61
Frank Joosten, 2007, Development strategy for the export-oriented
horticulture in Ethiopia, Wageningen University.
Gup,E.Benton, 1987, Principles of financial management, ,John Wiley and
Sons publishing Co., New York USA
Horn, C.V.James, 1989, Fundamental of Financial Management, 7th ed, ,
prentice hall., New Juresy, USA.
Jappan Embassy in Ethiopia, 2008, A series of studies on industries in
Ethiopia, Unpublished.
Jean B.M. Rwigema, 2004, Analysis of the non-traditional agricultural export
potential in Rwanda, University of the Western Cape, Rwanda.
John W.Creswell, 2003, Research design: Qualitative, Quantitative and mixed
methods approachs, 2nd edn, Sage publications, New Delhi, London.
Neveu, P.Raymond, 1985, Fundamental of Managerial Finance, 2nd edn,
South western publishing Co., West Chicago, IL, USA.
Wijnands .H.M., 2005, Impacts of institutions on the performance of flower
industry in developing countries, Wageningen University and the
research center, The Netherlands.
World Bank, 2004, Opportunities and challenges for Developing High-Value
Agriculture Exports in Ethiopia, Unpublished.
Zeleke, Hailu, 2007, Insurance in Ethiopia: Past, present and future condition,
1st edn, Master printing press p.l.c. Ethiopia.
62
Appendix A: Summary of financial ratios
Particulars 2004 2005 2006 2007 2008
Liquidity ratio:
Current ratio 1.55 1.77 1.85 1.55 2.01
Quick ratio 0.59 0.43 0.48 1.00 1.08
Leverage ratio:
Debt to Equity ratio 1.84 2.37 2.19 1.89 1.91
Debt to Assets ratio 65% 72% 63% 66% 66%
LTD to Equity ratio 109% 160% 146% 144% 145%
Profitability
Net profit margin ratio 16.30% 17% 20.75% 23.67% 29.30%
Operating expense ratio 83.61% 83% 7 9.25% 7 6.43% 70.70%
ROI 7.60% 8.24% 11.74% 17% 19.80%
ROE 21.65% 27.33% 40.67% 48.81% 57.55%
63
Appendix B Selected flower firms
Income Statement 64
Appendix B-1 For the year ended June 30, 2004
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Income
Sales of flower-Export 3126424 3906947 3542363.32 2602667 2943630 3219333 3372336.03 2432449 3943630 3042363.32 2283674 2919333 37335149.67
Other Income 1205045 648764 5916 438770 267155 94028.88 55003 343870 3916.77 302579 67155 3432202.65
Total Income 4331469 4555711 3548279.32 2602667 3382400 3486488 3466364.91 2487452 4287500 3046280.09 2586253 2986488 40767352.32
Expenses
Salaries and wages 497065 476502 746939.53 490029 334197 353963 819751.69 488905 334197 746939.53 444562 353963 6087013.75
Chemical and fertlizer 286219 355111 495360 738157 460770 368895 238900 788905 460770 495360 502150 368895 5559492
Machinary & sup. expense 300184 134050 187464.28 110309 333610 20887 113654 333610 187464.28 20887 1742119.56
Farm lease expense 434502 225550 188,,747.00 238000 207000 37800 565052.79 102000 207000 188,,747.00 795896 37800 2850600.79
Telephone, Fax and e-mail 1660 1483 965.45 1205 1210 2044 860 1050 1210 965.45 1350 2044 16046.9
fuel and lubricunt 556726 795050 337295.82 102110 277607 507291 188600 305630 277607 337295.82 565173 507291 4757676.64
Cold room expense 11012 34000 287464.28 10328 133612 20887 292247 113654 133612 287464.28 233052 20887 1578219.56
Bank service charge 23452 25774 10450 18000 32900 37800 15052.79 12000 32900 10450 95896 37800 352474.79
Transportation expenese 975691 320483 337295.82 268299 295700 507291 345900 222340 195700 337295.82 265173 507291 4578459.64
Uniform and protective 122990 85350 19500 85350 40205 353395
Advertizeing and promotion 71050 80088 80088 71050 302276
Airfreight transport 834486 478457 194985 29917 292044 952645 422364 376528 292044 194985 550828 952645 5571928
Deperciation expenese 18750 64732 40032 88494 98088 121002 101191 89970 98088 40032 36280 121002 917661
Misc. Expense 94050 25000 20700 17250 50000 24150 46000 50000 20700 32000 24150 404000
Total expenses 3536732 3059182 2730002.18 2112098 2682176 2954655 2989919.27 2191231 2582176 2730002.18 3562565 2954655 34085393.63
Net profit/loss 794737 1496529 818277.14 490569 700224 531833 476445.64 296221 1705324 316277.91 -976312 31833 6681958.69
Appendix B-2 Selected flower firms
Income Statement
For the year ended June 30, 2005 65
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Go Et En Jo Di Li Et Ab Du Ag Re
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Income
Sales of flower-Export 3548000 3782306 3573356 2622279 3329843 3548000 3586626.27 2900964 2956163 2329800 3652305 3073356 38902998.3
Other Income 463072 374200 352016 622279 446533 463072 450280.7 247672 117193 446533 211636 152016 4346502.7
Total Income 4011072 4156506 3925372 3244558 3776376 4011072 4036906.97 3148636 3073356 2776333 3863941 3225372 43249501
Expenses
Salaries and wages 445235 593101 425559 522760 663898 445235 439318.02 536677 499334 663898 644051 425559 6304625.02
Chemical and fertlizer 276787 255621 573824 769703 266805 276787 415651 467288 158209 266805 411520 573824 4712824
Machinary and supplise 412990 220093 263250 . 412990 376640 418659 . 2104622
Farm lease expense 434502 225550 37800 238000 207000 434502 565052.79 102000 188,,747.00 207000 795896 37800 3285102.79
Telephone, Fax and e-m2150 2480 2655 1605 2210 2150 2770 3542 2775 2210 2350 2655 29552
fuel and lubricunt 207960 378168 739650 310151 214984 207960 433265 538551 258752 214984 202500 339650 4046575
Cold room expense 305343 72736 38037 21742 97834 305343 226112 70523 97834 38037 1273541
Bank service charge 54000 37800 17200 207000 687930.2 97500 82300 207000 66605 37800 1495135.2
Transportation expenes 394594 832218 285104 215661 329568 394594 941343 229568 284389 485104 4392143
Uniform and protective 159594 269620 266599 159594 40205 895612
Advertizeing and promotion 383670 383670 767340
Airfreight transport 225170 537514 214107 433829 906511 225170 697563.47 388630 223733 306511 169984 214107 4542829.47
Misc. Expense 105230 35000 224150 18400 55000 105230 25000 46000 25300 55000 37000 224150 955460
Total expenses 2828911 3262186 2699688 2886501 3602078 2828911 3744290.48 2965890 2987559 2902078 2690780 2499688 35898560.5
Net profit/losss 1182161 894320 1225684 358057 174298 1182161 292616.49 182746 85797 -125745 1173161 725684 7350940.49
Income Statement 66
For the year ended June 30, 2006
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To
Income
Sales of flower-Export 3638171 3755407 4157483 2934319 2122874 4138171 3157483.38 4026632 3387846 4138171 3323219 2952922 41732698.4
Other Income 422487 310346 737450.8 934519 1460856 622487 737450.8 477645 521072 522487 503.025.00 510247 7257047.6
Total Income 4060658 4065753 4894933.8 3868838 3583730 4760658 3894934.18 4504277 3908918 4660658 3323219 3463169 48989746
Expenses
Salaries and wages 785947 329298 756497.19 586729 164031 785947 756497.19 916238 316119 785947 688789 461792 7333831.38
Chemical and fertlizer 285417 655151 663995 895841 713334 285417 663995 554432 30120 285417 328359 5361478
Machinary and supplise 257540 196802 243220 760530 112890 257540 243220 490171 257540 314212 3133665
Farm lease expense 434502 225550 565052.79 238000 207000 434502 565052.79 102000 188,,747.00 334502 595896 37800 3739857.58
Telephone, Fax and e-m2552.166 320483 720 2312 2210 2552.166 720 1860 968 2552.166 1350 2377 340656.498
fuel and lubricunt 361312 715234 405225 540467 361312 465474 652514 361312 898237 583535 5344622
Cold room expense 317193 26001 341070 53118 154859 317193 341070 93789 311195 317193 34800 53143 2360624
Bank service charge 1624 54000 17000 58955 1624 110200 79300 1624 132328 37800 494455
Transportation expenes 233710 274251 497171.45 298363 540992 233710 497171.45 272651 233710 182346 532233 3796308.9
Uniform and protective 70153 308412 266599 40205 685369
Advertizeing and promotion 35095 277215 312310
Airfreight transport 368610 957209 183222.39 158155 368610 183222.39 452496 463261 368610 13431 795547 4312373.78
Misc. Expense 97750 35000 30000 18400 55200 97750 30000 146000 27600 97750 37000 24150 696600
Total expenses 3165457.17 3864779 3417234.82 3522167 2718179 3165457.2 3382139.82 3618086 2950530 3065457.166 2974874 2977738 38822099.1
Net profit/loss 895200.834 200974 1477698.98 346671 865551 1595200.8 512794.36 886191 958388 1595200.834 348345 485431 10167646.8
Appendix B-4 Selected flower firms 67
Income Statement
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To
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Income
Sales of flower-Export 4,170,590 4,077,508 4,187,823 4,126,569 3,906,243 3,445,824 4,426,569 4,087,823 3,512,012 3,403,707 4,387,823 4,102,836 47,835,327
Other Income 616,110 705,972 336,680 369,765 652,508 369,607 569,765 236,680 432,827 545,948 336,680 255,580 5,428,122
Total Income 4,786,700 4,783,480 4,524,503 4,745,470 4,558,751 3,815,431 4,745,470 4,324,503 3,944,839 3,949,655 4,724,503 4,358,416 53,261,721
Expenses
Salaries and wages 536,235 659,727 533,050 864,178 489,138 360,144 864,178 533,050 391,364 621,161 533,050 627,428 7,012,703
Chemical and fertlizer 703,170 342,984 302,389 569,841 466,146 221,124 569,841 302,389 321,100 537,706 302,389 430,178 5,069,257
Machinary and supplise 331,565 249,136 112,382 257,553 585,937 361,030 257,553 112,382 562,154 303,705 312,382 494,460 3,940,239
Farm lease expense 334,502.00 225,550.00 102,000.00 238,000.00 207,000.00 565,052.00 238,000.00 102,000.00 188,,747.00 295,896.00 102,000.00 229,800.00 2,639,800
Telephone, Fax and e-m 2,130.00 320,483.00 1,050.00 2,100.00 2,220.00 860.00 2,100.00 1,050.00 1,639.00 2,110.00 1,050.00 2,105.00 338,897
fuel and lubricunt 485,930 402,310 284,251 385,937 396,554 284,251 402,310 545,000 486,440 402,310 342,003 4,417,296
Cold room expense 535,421 68,787 135,084 157,325 187,517 233,066 257,325 135,084 128,821 132,892 135,084 279,325 2,385,731
Bank service charge 12,560 460,744 101,000 18,000 191,250 18,000 101,000 75,850 203,875 101,000 137,800 1,421,079
Transportation expenes 184,516 354,000 144,660 379,193 527,155 338,626 379,193 399,230 317,635 764,234 3,788,442
Uniform and protective 21,348 24,890 46,489 24,890 26,659 40,205 24,890 209,371
Advertizeing and promo 345,120 272,330 306,702 294,466 272,330 272,330 313,451
Airfreight transport 533,487 312,267 377,057 351,736 245,628 246,897 351,736 377,057 262,192 471,717 377,057 240,537 4,147,368
Deperciation expenese 209,800 222,670 523,622 439,680 412,506 253,354 439,680 523,622 523,622 3,548,556
Misc. Expense 195,000 235,000 257,500 318,400 65,682 30,000 318,400 57,500 33,925 37,000 157,500 27,600 1,733,507
Total expenses 4,409,436 3,472,696 3,289,324 3,880,257 3,812,604 3,313,409 4,274,723 2,944,664 2,747,934 3,450,342 3,244,664 3,888,921 40,652,245
Net profit/loss 377,264 1,310,784 1,235,179 865,213 746,147 502,022 470,747 1,379,839 1,196,905 499,313 1,479,839 469,495 12,609,476
Income Statement
For the year ended June 30, 2008 68
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hi
ire
yt
ns
ug
by
ed
es
gr
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al
Go
Et
Jo
Et
Li
M
t
To
Income
Sales of flower-export 4,127,688 4,109,343 3,482,706 4,126,569 3,967,717 3,482,706 4,023,802 4,036,875 4,810,655 3,982,700 4,923,802 4,923,955 49,998,517
other Income 125,680 519,742 502,130 726,569 565,817 302,130 347,500 465,960 594,092 402,130 647,500 709,682 5,908,932
Total Income 4,253,368 4,629,085 3,984,836 4,853,138 4,533,534 3,784,836 4,371,302 4,502,835 5,404,747 4,384,830 5,571,302 5,633,637 55,907,449
Expenses -
Salaries and wages 423,630 603,824 587,975 864,178 659,821 587,975 590,630 551,890 523,307 587,975 590,630 516,417 7,088,252
Chemical and fertlizer 433,841 410,980 417,079 319,671 260,877 417,079 204,790 416,971 251,044 417,079 804,790 477,980 4,832,182
Machinary and supplise expen 266,015 235,069 132,990 42,498 300,520 278,204 713,589 440,570 278,204 551,770 3,239,429
Farm lease expense 434,502.00 225,550.00 365,052.00 238,000.00 207,000.00 565,052.00 395,896.00 102,000.00 188,,747.00 565,052.00 395,896.00 337,800.00 3,831,800
Telephone, Fax and e-mail 1,330.00 320,483.00 1,120.00 1,465.00 1,210.00 1,120.00 1,350.00 1,050.00 965.45 1,120.00 1,350.00 1,990.00 334,553
fuel and lubricunt 233,039 470,138 220,560 249,136 815,473 220,560 527,163 276,890 383,538 220,560 527,163 962,239 5,106,459
Cold room expense 475,978 137,127 110,097 757,325 403,002 110,097 208,282 792,888 110,097 480,880 229,637 3,815,410
Bank service charge 23,870 54,000 18,000 160,419 903,154 542,128 610,530 903,154 37,800 3,253,055
Transportation expenese 309,325 825,290 849,962 379,193 756,517 849,962 392,924 374,660 883,835 849,962 412,924 479,024 7,363,579
Uniform and protective 37,648 37,648 40,205 224,931 37,648 40,205 418,285
Advertizeing and promotion 379,282 233,350 612,632
Airfreight transport 471,202 400,145 367,906 351,736 232,860 367,906 384,023 700,083 273,126 367,906 384,023 202,120 4,503,037
Deperciation expenese 309,400 222,670 253,354 439,680 312,506 253,354 740,990 523,622 485,253 253,354 961,760 1,004,530 5,760,473
Misc. Expense 116,215 35,000 130,000 18,400 164,032 230,000 42,550 251,750 127,500 30,000 42,550 36,800 1,224,797
Total expenses 3,498,347 3,940,276 3,473,744 4,058,564 4,274,237 3,640,754 4,501,879 3,949,326 5,270,506 3,881,324 5,823,529 5,071,457 39,526,996
Net profit /loss 755,021 688,809 511,092 794,574 259,297 144,082 (130,577) 553,509 134,241 503,506 (252,227) 562,180 16,380,453
Appendix C Selected flower firms
Balance Sheet 6
Appendix C-1 For the year ended June 30, 2004
er re
os e f low plc ers ltu ia
plc e rs nd se Flo
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op
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Item Ro lor E th
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lde
n
hi oF ey ske yte r e H s se
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y s si
g a d
r i S d Fo t al
Go Et En Me Jo Di Lin Et Ab Du Ag Re To
Current Assets
Cash on hand 140,230 292,570 447,160 709,192 447,160 548,905 470,816 388,175 140,230 960,718 759,214 548,905 5,853,275
Cash at bank 625,925 337,099 300,785 563,000 300,785 808,617 539,288 503,100 625,925 465,136 771,490 808,617 6,649,767
Petty cash 102,050 9,010.00 111,980.00 73,110.00 111,980.00 107,730.00 100,030.00 20,500.00 102,050 49,300.00 212,080.00 107,730.00 1,107,550.00
Inventory of chemicals 53,040 145,840 145,642 662,700 145,642 23,020 96,120 65,537 53,040 230,012 520,650 23,020 2,164,263
packing material 19,200 21,030.00 55,120.00 110,097.00 55,120.00 333,054.00 27,090.00 21,350.00 19,200 29,148.00 119,071.00 333,054.00 1,142,534
planting seeds 90,380 8,940.00 123,150.00 112,040.00 123,150.00 36,087.00 160,870.00 825,420.00 90,380 359,160.00 23,184.00 36,087.00 1,988,848
Trade debtors 965,598 944,063 810,286 1,023,109 810,286 929,994 724,621 982,978 965,598 968,998 667,542 929,994 10,723,067
Prepayments 466,508 800,109 97,586 601,100 97,586 539,377 417,600 300,762 466,508 732,160 413,990 539,377 5,472,663
Withhold tax recievables 93,115 91,110 93,115 103,747 22,645 365,698 769,430
VAT Rreceivable 41,577 38,912 38,912 41,577 160,978
Total Current sset 2,504,508 2,558,661 2,223,736 3,945,458 2,223,736 3,326,784 2,640,183 3,130,467 2,504,508 4,160,330 3,487,221 3,326,784 36,032,376
Fixed Assets
Green house 2,183,055 2,039,500 2,955,624 2,000,600 2,955,624 2,050,000 2,084,438 2,006,000 2,183,055 2,184,500 2,109,520 2,050,000 26,801,916
Land &building 357,602 780,697 549,428 214,100 549,428 399,993 349,418 410,120 357,602 461,830 671,341 399,993 5,501,552
Furn.,fixt. and office
equip. 561,556 484,842 189,745 847,912 189,745 343,250 572,514 416,218 561,556 461,822 252,827 343,250 5,225,237
cooling System 1,746,175 238,300 318,375 309,794 318,375 194,163 402,480 510,176 1,746,175 203,578 136,952 194,163 6,318,706
Motor vehicles 2,116,607 2,150,306 2,117,949 2,217,574 2,117,949 2,088,320 2,028,234 2,172,618 2,116,607 1,561,096 2,195,604 2,088,320 24,971,184
Tools 947,163 1,251,742 332,073 281,063 332,073 361,030 721,375 205,110 947,163 363,334 320,560 161,030 6,223,716
Less: Accum. Depr. (1,975,100.00) (1,994,520) (1,924,360) (1,951,012) (1,924,360) (1,924,520) (1,928,300) (1,938,812) (1,975,100.00) (1,924,550) (1,824,000) (1,924,520) (23,209,154)
Total fixed asset 5,937,058 4,950,867 4,538,834 3,920,031 4,538,834 3,512,236 4,230,159 3,781,430 5,937,058 3,311,610 3,862,804 3,312,236 25,031,241
Total Assets 8,441,566 7,509,528 6,762,570 7,865,489 6,762,570 6,839,020 6,870,342 6,911,897 8,441,566 7,471,940 7,350,025 6,639,020 87,865,533
current liability
Creditors 1,967,554 1,059,177 963,471 763,393 963,471 508,663 861,984 894,054 1,967,554 820,324 741,752 808,663 12,320,060
Income tax payable 340,711 454,090 24,501 661,798 24,501 610,748 128,300 422,853 340,711 322,853 591,305 610,748 4,533,119
Short term bank loan 1,166,201 294,843 252,236 317,400 252,236 565,570 405,457 440,792 1,166,201 487,787 417,213 565,570 6,331,506
Total Current Liability 3,474,466 1,808,110 1,240,208 1,742,591 1,240,208 1,684,981 1,395,741 1,757,699 3,474,466 1,630,964 1,750,270 1,984,981 23,184,685
Long term liability
Land lease payables 1,785,000 1,752,300 1,529,830 1,326,987 1,529,830 1,647,613 1,702,201 1,420,256 1,785,000 1,064,346 1,648,513 1,647,613 18,839,489
Long term bank loan 926,656 1,111,225 1,617,190 1,628,390 1,617,190 637,010 698,800 1,608,329 926,656 1,904,783 1,570,800 637,510 14,884,539
Total long term liability 2,711,656 2,863,525 3,147,020 2,955,377 3,147,020 2,284,623 2,401,001 3,028,585 2,711,656 2,969,129 3,219,313 2,285,123 33,724,028
Total liability 6,186,122 4,671,635 4,387,228 4,697,968 4,387,228 3,969,604 3,796,742 4,786,284 6,186,122 4,600,093 4,969,583 4,270,104 42,024,174
Shareholder's Fund
Share Capital 1,321,014.00 1,807,200.00 868,941.00 1,254,990.00 868,941.00 1,174,007.00 1,561,912.00 596,670.00 1,321,014.00 370,570.00 702,190.00 1,174,007.00 13,021,456.00
Legal reserve 512,585 413,527 702,630 712,390 702,630 737,904 841,568 615,440 512,585 1,200,042 1,302,233 837,904 9,091,438
Retained earnings 421,845 617,166 803,771 1,200,141 803,771 957,505 670,120 913,503 421,845 300,735 776,019 957,505 8,843,926
Total Shareholder's Fund 2,255,444 2,837,893 2,375,342 3,167,521 2,375,342 2,869,416 3,073,600 2,125,613 2,255,444 1,871,347 2,780,442 2,969,416 30,956,820
Total Liability & Shareho 8,441,566 7,509,528 6,762,570 7,865,489 6,762,570 6,839,020 6,870,342 6,911,897 8,441,566 6,471,440 7,750,025 7,239,520 87,865,533
Appendix C-2 Selected flower firms 7
Balance Sheet
er re
se l ow rs ltu pia
lc Ro e rs df pl c o we c u io
Item o se r ap io o w
hla
n os
e
am F l
flo
ri
re th
R Fl
o th Fl g nR Dr
e ia ha x E
en io yE el ch Hi se sin d a S Fo l
ld h e e s k yte re ns hio ys ga ri d ta
Go Et E n M J o Di Li Et Ab Du Ag Re To
Current Assets
Cash on hand 490,920 237,331 302,890 756,822 490,920 76,201 383,380 240,836 756,822 12,035 383,380 4,131,537
Cash at bank 629,865 271,053 531,674 349,255 492,862 271,053 421,595 104,315 492,862 153,721 3,718,255
Petty cash 112,500 110,080.00 112,500 189,010.00 20,500.00 143,110.00 110,080.00 101,630.00 20,500.00 49,300.00
Inventory of chemicals 53,040 145,642 145,840 122,700 230,012 145,642 106,120 23,020 65,537 230,012 520,650 23,020 1,811,235
Packing material 35,400 500,261 83,270 705,415 500,261 164,561 873,183 856,762 735,643 873,183 5,327,939
planting seeds 16,180 123,150.00 8,940.00 2,040.00 359,160.00 123,150.00 160,870.00 36,087.00 25,420.00 359,160.00 23,184.00 36,087.00 1,273,428
Trade debtors 1,198,159 1,038,931 970,923 836,194 1,296,169 1,038,931 1,099,558 2,985,132 1,102,680 1,296,169 1,028,638 2,985,132 16,876,616
Prepayments 398,462 213,202 56,871 156,500 76,700 213,202 46,280 314,513 168,681 76,700 314,513 2,035,624
Withhold tax recievables 13,529 22,075 13,529 49,133
VAT receivable 463,470 34,480 126,210 34,480 22,000 680,640
Total Current sset 2,794,576 2,895,659 2,034,849 2,474,994 3,369,814 2,895,659 2,390,405 4,635,815 2,729,416 3,369,814 2,597,501 4,635,815 35,953,707
Fixed Assets
Green house 2,502,502 2,098,449 1,998,833 2,004,302 2,008,000 2,098,449 2,038,175 2,018,750 1,953,000 2,008,000 2,100,000 2,018,750 24,847,210
Land &building 379,406 742,401 816,776 568,772 217,500 742,401 458,065 266,460 427,486 217,500 484,920 266,460 5,588,147
Furn.,fixt. and office equip. 298,860 99,591 965,861 322,294 330,138 99,591 567,744 523,959 624,092 330,138 646,144 523,959 5,332,371
Cooling system 1,039,739 900,780 815,278 1,025,540 789,001 900,780 1,244,703 387,580 453,155 789,001 427,496 387,583 9,160,636
Motor vehicles 2,023,211 2,162,315 2,119,985 2,011,842 2,197,333 2,362,315 1,922,877 2,658,190 2,022,618 2,197,333 2,086,580 2,158,190 25,922,789
Tools 527,280 32,470 840,217 25,900 349,725 132,470 398,952 665,717 349,725 358,898 598,952 3,748,884
Less: Accum. Depr. (1,535,100.00) (1,924,350) (1,954,250) (1,961,000) (1,562,550) (1,624,350) (1,908,000) (1,954,520) (1,937,490) (1,562,550) (1,942,000) (1,954,520) (21,820,680)
Total Assets 8,030,474 7,007,315 7,637,549 6,472,644 7,698,961 7,607,315 6,713,970 8,935,186 6,937,994 7,698,961 6,759,539 8,635,189 89,264,487
current liability -
Creditors
1,031,969 1,540,512 1,301,235 702,316 1,181,046 1,540,512 1,137,684 1,749,315 1,106,307 1,181,046 1,745,190 1,749,315 15,966,447
Short term bank loan 266,901 658,236 294,843 317,400 187,700 258,236 405,656 165,570 440,792 187,700 417,213 165,570 3,765,817
Income tax Payable
228,760 209,640 99,938 633,015 342,935 205,640 630,023 26,735 607,409 342,935 675,070 26,735 4,028,835
Long term liability
-
Land lease payables
1,826,452 1,898,531 2,200,162 1,826,987 2,023,696 1,898,531 2,010,000 1,487,200 1,226,735 2,023,696 1,261,735 1,487,200 21,170,925
long term bank loan
1,770,038 1,006,000 1,488,540 1,105,500 2,169,500 1,006,000 1,330,000 2,723,000 809,000 2,169,500 810,000 2,923,000 19,310,078
Total long term liability
3,596,490 2,904,531 3,688,702 2,932,487 4,193,196 2,904,531 3,340,000 4,210,200 2,035,735 4,193,196 2,071,735 4,410,200 40,481,003
Total liability 5,124,120 5,312,919 5,384,718 4,585,218 5,904,877 4,908,919 5,513,363 6,151,820 4,190,243 5,904,877 4,909,208 6,351,820 64,242,102
Shareholder's Fund
Share capital
1,433,628 338,800 976,300 997,131 1,114,864 838,800 937,785 1,245,004 1,717,000 1,114,964 900,217 1,715,007 13,329,500
Legal reserve
791,380 938,770 667,326 492,561.00 148,910.00 928,770 674,003 148,920.00 388,080.00 5,178,720
Retained earnings
681,346 416,826 609,205 397,234 530,200 930,826 262,822 568,362 456,748 530,200 562,034 568,362 6,514,165
Total Shareholder's Fund
2,906,354 1,694,396 2,252,831 1,886,926 1,793,974 2,698,396 1,200,607 1,813,366 2,847,751 1,794,084 1,850,331 2,283,369 25,022,385
Total Liability & Shareholder's 8,030,474 7,007,315 7,637,549 6,472,144 7,698,851 7,607,315 6,713,970 7,965,186 7,037,994 7,698,961 6,759,539 8,635,189 89,264,487
Balance Sheet
Company er
l ow re
l c o s e r s f p l c wers ul tu pia
e nd ic io
os
e ap io
R
low hla os
e
ea
m Flo lor re th
Item R lor th F i g R r ni a a f
ha x E
d e n io F
y E kel tech H s s en io D s s i a d i S Fo l
l h e s y r e n h y g r d ta
Go Et En Me Jo Di Li Et Ab Du Ag Re To
Current Assets
Cash on hand 511,971 199,908 215,945 423,645 158,330 199,908 642,384 363,449 559,290 642,384 205,785 158,330 4,281,329
Cash at bank 389,510 531,775 389,510 393,680 357,350 313,600 393,680 444,010 3,213,115
Petty cash 102,050 11,980.85 89,010.00 73,110.00 105,520.00 11,980.85 101,630.00 25,500.00 150,300.00 101,630.00 112,050.00 105,520.00 990,282
Inventory of chemical 182,700 42,100.00 120,050.00 100,000.00 233,054.00 42,100.00 27,090.00 21,350.00 9,148.00 27,090.00 19,071.00 233,054.00 1,056,807
Planting seeds 290,380 23,150.00 8,940.00 12,040.00 36,087.00 23,150.00 160,870.00 625,420.00 59,160.00 160,870.00 23,184.00 36,087.00 1,459,338
Trade debtors 1,212,920 1,053,871 1,096,090 1,626,875 1,421,786 1,053,871 1,211,490 1,215,107 1,077,592 1,211,490 1,144,031 1,421,786 14,746,909
Prepayments 133,668 364,540 317,357 518,777 1,070,556 364,540 126,816 185,045 1,315,565 126,816 1,178,990 1,070,556 6,773,226
Withhold tax receivables 12,306 115,400 127,706

VAT receivable
Total Current Asset 2,433,689 2,085,060 2,391,473 2,754,447 3,025,333 2,085,060 2,663,959 2,908,621 3,484,655 2,663,959 3,127,121 3,025,333 32,648,711
Fixed Assets
Green house 2,441,315 2,146,911 2,085,428 1,754,333 1,753,232 2,146,911 1,916,116 1,736,517 1,869,460 1,916,116 1,909,848 1,753,232 23,429,419
Land &building 733,970 482,850 775,340 407,736 771,104 482,850 352,024 728,185 588,143 352,024 897,779 771,104 7,343,109
equip. 441,315 266,911 408,540 154,333 375,320 266,911 816,146 736,517 469,460 816,146 409,848 375,320 5,536,767
Cooling system 902,720 290,082 377,615 397,233 790,275 290,082 916,464 570,045 491,404 916,464 470,696 790,275 7,203,355
Motor vehicles 2,737,401 2,851,480 2,879,332 2,095,440 2,143,993 2,851,480 2,149,785 2,468,718 2,091,191 2,149,785 2,189,895 2,143,993 28,752,493
Tools 327,280 732,470 840,210 655,900 598,902 732,470 120,500 665,717 349,325 120,500 558,898 598,902 6,301,074
Less: Accum. Depr. (2,061,240) (2,032,996) (2,655,476) (1,677,125) (1,966,795) (2,032,996) (2,001,147) (2,334,163) (1,879,620) (2,001,147) (1,979,573) (1,966,795) (24,589,074)
Total Assets 7,956,450 6,822,768 7,102,462 6,542,297 7,491,364 6,822,768 6,933,847 7,480,157 7,464,018 6,933,847 7,584,512 7,491,364 86,625,854
Current liability
Short term loan 304,514 160,360 350,556 283,230 161,622 160,360 180,188 504,002 18,381 180,188 212,894 161,622 2,677,916
Income tax Payable 156,618 93,885 88,900 123,079 386,644 93,885 163,058 41,059 31,226 163,058 319,532 386,644 2,047,588
Creditors and accruals 1,002,062 1,021,900 1,237,194 1,151,191 946,152 1,021,900 1,102,774 919,406 1,407,835 1,102,774 1,056,465 946,152 12,915,805
Long term liability
Land lease payables 1,613,270 1,242,092 1,219,435 1,603,166 2,173,474 1,242,092 1,251,036 2,383,873 2,383,045 1,251,036 2,635,411 2,173,474 18,316,042
Long term bank loan 2,547,038 2,053,400 2,020,000 2,033,073 1,635,300 2,053,400 1,473,000 2,000,000 2,071,000 1,473,000 1,820,000 1,635,300 18,214,073
Total long term liability 4,160,308 3,295,492 3,239,435 3,636,239 3,808,774 3,295,492 2,724,036 4,383,873 4,454,045 2,724,036 4,455,411 3,808,774 36,530,115
Total liability 5,623,502 4,571,637 4,916,085 5,193,739 5,303,192 4,571,637 4,170,056 5,848,340 5,911,487 4,170,056 6,044,302 5,303,192 54,171,424
Shareholder's Fund -
Share capital 856,310 738,573 461,126 497,521.00 541,362 738,573 1,070,613 581,010 188,920.00 1,070,613 788,080.00 541,362 8,074,063
Legal reserve 508,598 735,890 615,965 341,668 823,150 735,890 243,550 410,054 823,151 5,237,916
Retained earnings 968,040 776,668 1,109,286 509,369 823,660 776,668 1,693,178 807,257 953,557 1,693,178 752,130 823,660 11,686,651
Total Shareholder's Fund 2,332,948 2,251,131 2,186,377 1,348,558 2,188,172 2,251,131 2,763,791 1,631,817 1,552,531 2,763,791 1,540,210 2,188,173 24,998,630
Total Liability & Shareholder's 7,956,450 6,822,768 7,102,462 6,542,297 7,491,364 6,822,768 6,933,847 7,480,157 7,464,018 6,933,847 7,584,512 7,491,365 86,625,854
Balance Sheet
er re
e l ow rs ltu pia
pl c os rs f pl c we u
e R we n d
os
e
am lo ric hio
Item o s
o r a io lo hla e ia
F flo re Et
R Fl th el
F
ch Hi
g nR Dr sin a ha Fo
x
ld en
h io e yE e s k yte re ns
se hio ys ga d
r i S
d ta l
Go Et En M J o Di Li Et Ab Du Ag Re To
Current Assets
Cash on hand 402,675.00 11,965.20 19,965.00 39,618.39 832,322.00 965.20 104,726.00 332,322.00 39,618.39 732,322.00 11,965.20 2,528,464.38
Cash at bank 521,097.00 714,093.59 1,704,093.59 888,140.00 456,290.00 362,787.00 704,093.59 640,093.00 862,787.00 456,290.00 162,787.00 714,093.59 8,186,645.36
Petty cash 34,450 52,030.00 28,090.00 132,750.00 12,200.00 18,980.00 72,030.00 54,823.10 18,980.00 12,200.00 18,980.00 52,030.00 507,543.10
Inventory of chemicals 89,990 132,730.00 102,345.00 62,410.00 76,300.00 22,980.85 132,730.00 120,500.00 22,980.85 76,300.00 21,080.85 132,730.00 993,077.55
Packing material 7,687 333,054.00 13,630.00 11,097.00 8,149.00 9,071.00 53,054.00 17,350.00 9,071.00 8,149.00 19,071.00 333,054.00 822,437.00
Planting seeds 72,387 36,087.00 68,940.00 148,550.00 49160.72 23,184.00 36,087.00 82,542.00 23,184.00 49160.72 23,184.00 36,087.00 648,553.44
Trade debtors 788,073.00 629,544.00 627,875.00 261,691.00 472,812.00 52,174.00 829,544.00 717,349.00 52,174.00 472,812.00 152,174.00 629,544.00 5,685,766.00
Prepayments 68,876.00 153,054.73 153,054.71 44,035.00 29,554.69 153,054.73 424,103.00 29,554.69 551,091.00 153,054.73 1,759,433.28
Withhold tax recievables 12,000 64,080.00 1,687.00 49,441.70 1,687.00 7,687.00 136,582.70
VAT Receivable 628,879.00 49,441.70 14,980.00 153,045.00 14,980.00 861,325.70
Total Current sset 2,223,439.00 2,062,558.52 2,767,435.00 1,612,753.00 1,159,064.80 1,323,185.85 2,031,000.22 2,314,531.10 1,323,185.85 1,159,064.80 1,688,376.85 2,062,558.52 17,441,155.99
Fixed Asset
Green house 864,444.00 2,331,500.00 761,500.00 900,330.21 1,907,000.00 1,757,580.00 2,831,500.00 2,720,000.00 1,757,580.00 1,907,000.00 1,201,580.00 2,331,500.00 21,271,514.21
Land &building 725,192.00 812,919.00 812,938.00 138,313.00 138,937.00 641,401.00 812,919.90 104,230.00 641,401.00 138,937.00 641,401.00 812,919.00 6,421,507.90
equip. 364,110.00 351,765.00 254,260.00 651,847.00 77,126.27 267,569.00 350,765.00 438,094.00 267,569.00 77,126.27 567,569.00 351,765.00 4,019,565.54
Cooling system 58,407.00 860,043.00 73,200.00 39,337.00 267,599.00 884,980.00 860,043.00 871,915.00 884,980.00 267,599.00 884,980.00 860,043.00 6,813,126.00
Motor vehicles 5,188,871.00 2,181,000.41 2,977,072.41 929,341.00 2,390,775.49 3,665,379.00 2,901,000.41 3,375,092.00 3,665,379.00 2,390,775.49 2,665,379.00 2,181,000.41 34,511,065.62
Tools 541,064.00 497,191.00 133,904.00 527,102.00 860,043.05 32,070.00 97,191.00 451,064.00 32,070.00 860,043.05 732,070.00 497,191.00 5,261,003.10
Less: Accum. Depr. (1,577,527.00) (1,050,206.61) (1,950,006.61) (806,518.00) (803,460.36) (1,861,310.00) (950,206.61) (1,180,592.00) (1,861,310.00) (803,460.36) (1,761,310.00) (950,206.61) (15,556,114.16)
Total fixed asset 6,164,561.00 3,652,711.80 3,062,867.80 2,379,752.21 4,838,020.45 5,387,669.00 4,071,712.70 4,059,803.00 5,387,669.00 4,838,020.45 4,931,669.00 3,752,711.80 52,527,168.21
Total Assets 8,388,000.00 5,715,270.32 5,830,302.80 3,992,505.21 5,997,085.25 6,710,854.85 6,102,712.92 6,374,334.10 6,710,854.85 5,997,085.25 6,620,045.85 5,815,270.32 74,254,321.72
Current Liability
Creditors 1,331,064.00 1,281,511.20 980,510.00 1,005,765.00 579,784.21 77,503.00 981,511.70 509,416.00 77,503.00 579,784.21 1,377,514.00 1,281,511.20 10,063,377.52
Income tax payable 31,256.00 7,893.18 57,895.00 23,955.00 27,081.00 17,893.28 11,902.10 27,081.00 14,915.00 7,893.18 227,764.74
Short term Bank loan 321,080.00 445,710.02 145,610.00 987,923.00 145,710.02 601,421.00 987,923.00 387,923.00 445,710.02 4,469,010.06
Total Current Liability 1,683,400.00 1,735,114.40 1,184,015.00 1,029,720.00 606,865.21 1,065,426.00 1,145,115.00 1,122,739.10 1,065,426.00 606,865.21 1,780,352.00 1,735,114.40 14,760,152.32
Long term bank loan 1,125,900.00 894,403.00 955,000.00 920,784.21 612,000.00 1,245,610.00 1,894,903.00 872,982.00 1,245,610.00 612,000.00 744,610.00 894,403.00 12,018,205.21
Land lease payables 2,179,000.00 1,117,577.00 1,500,700.00 745,647.00 2,745,647.36 2,223,528.85 1,194,517.00 2,132,890.00 2,223,528.85 2,745,647.36 2,223,528.85 1,117,577.00 22,149,789.27
Total long term debt 3,304,900.00 2,011,980.00 2,455,700.00 1,666,431.21 3,357,647.36 3,469,138.85 3,089,420.00 3,005,872.00 3,469,138.85 3,357,647.36 2,968,138.85 2,011,980.00 34,167,994.48
Total liability 4,988,300.00 3,747,094.40 3,639,715.00 2,696,151.21 3,964,512.57 4,534,564.85 4,234,535.00 4,128,611.10 4,534,564.85 3,964,512.57 4,748,490.85 3,747,094.40 48,928,146.80
Shareholder's Fund
Share capital 1,374,200.00 829,911.92 929,933.00 567,829.00 431,012.00 768,942.00 829,913.92 615,000.00 768,942.00 431,012.00 460,347.00 829,811.92 8,836,854.76
Legal reserve 765,600.00 425,724.00 629,750.00 694,517.68 426,651.00 425,724.00 266,919.00 426,651.00 694,517.68 426,601.00 417,724.00 5,600,379.36
Retained earnings 1,268,000.00 712,540.00 630,904.80 728,525.00 907,043.00 980,697.00 712,540.00 1,363,804.00 980,697.00 907,043.00 984,607.00 712,540.00 10,888,940.80
Total Shareholder's Fund 3,407,800.00 1,968,175.92 2,190,587.80 1,296,354.00 2,032,572.68 2,176,290.00 1,968,177.92 2,245,723.00 2,176,290.00 2,032,572.68 1,871,555.00 1,960,075.92 25,326,174.92
8,396,100.00 5,715,270.32 5,830,302.80 3,992,505.21 5,997,085.25 6,710,854.85 6,202,712.92 6,374,334.10 6,710,854.85 5,997,085.25 6,620,045.85 5,707,170.32
Total Liability & Shareho 74,254,321.72
Balance Sheet
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Go Et En M J o Di Li Et Ab Du Ag Re To
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Current Assets
Cash on hand 419,581.00 300,909.55 330,370.00 242,740.00 300,909.55 589,856.00 136,767.00 1,105,749.00 589,856.00 242,740.00 276,532.00 4,536,010.10
Cash at bank 1,023,479.00 902,745.00 394,764.00 394,102.00 1,159,540.00 394,764.00 754,609.00 445,609.00 723,938.00 754,609.00 1,159,540.00 702,504.00 8,810,203.00
Petty cash 84,450 128,090.00 62,030.00 122,750.00 19,005.00 62,030.00 28,950.00 14,823.10 20,090.00 28,950.00 19,005.00 42,030.00 632,203.10
Inventory of chemicals 102,050 89,010.00 101,630.00 73,110.00 11,980.85 101,630.00 12,080.00 20,500.00 49,300.00 12,080.00 11,980.85 107,730.00 693,081.70
Packing material 18,870 21,030.00 27,090.00 10,097.00 5,120.00 27,090.00 19,071.00 21,350.00 9,148.00 19,071.00 5,120.00 333,054.00 516,111.00
Planting seeds 90,380 8,940.00 160,870.00 12,040.00 23,150.00 160,870.00 23,184.00 825,420.00 59,160.00 23,184.00 23,150.00 36,087.00 1,446,435.00
Trade debtors 834,762.00 761,958.00 599,639.00 790,903.00 612,173.00 599,639.00 165,684.00 961,662.00 126,672.00 165,684.00 612,173.00 665,509.00 6,896,458.00
Prepayments 292,530.00 607,408.00 77,194.34 151,915.00 134,729.00 77,194.34 213,591.00 134,729.00 272,480.00 1,961,770.68
Withhold tax recievables 17,336.88 17,336.88 209,070.00 127,009.00 370,752.76
VAT Receivable 3,844.00 3,844.00
Total Current sset 2,450,365.00 2,938,762.00 1,741,463.77 1,885,287.00 2,208,437.85 1,741,463.77 1,593,434.00 2,848,792.10 2,094,057.00 1,593,434.00 2,208,437.85 2,562,935.00 25,866,869.34
Fixed Assets -
Green house 1,864,444.00 1,761,500.00 2,531,500.00 1,050,330.21 1,357,500.00 2,531,500.00 1,201,580.00 2,420,000.00 1,507,000.00 1,201,580.00 1,357,500.00 1,331,500.00 20,115,934.21
Land &building 975,111.00 855,080.00 833,009.30 749,225.00 857,153.00 833,009.30 1,834,896.00 96,000.00 561,660.00 1,834,896.00 857,153.00 496,759.00 10,783,951.60
equip. 208,373.00 555,373.00 373,394.00 683,042.00 852,302.00 373,394.00 521,516.00 528,272.00 300,697.00 521,516.00 852,302.00 626,239.00 6,396,420.00
Cooling System 319,182.00 726,264.00 440,925.00 163,772.00 270,038.00 440,925.00 892,282.00 572,525.00 671,348.00 892,282.00 270,038.00 496,759.00 6,156,340.00
Motor vehicles 3,541,662.00 1,326,364.00 2,092,893.33 1,439,910.00 3,333,624.00 2,092,893.33 2,371,553.00 3,022,718.00 1,709,636.00 2,371,553.00 3,333,624.00 2,015,206.00 28,651,636.66
Tools 451,064.00 233,931.00 781,715.00 527,102.00 32,070.00 781,715.00 732,060.00 353,004.00 860,043.05 732,060.00 32,070.00 597,121.00 6,113,955.05
Less: Accum. Depr. (1,075,100.00) (1,950,000.00) (1,850,206.00) (1,000,518.00) (2,161,310.00) (1,850,206.00) (1,761,310.00) (2,945,902.00) (1,403,460.00) (1,761,310.00) (2,161,310.00) (1,450,206.61) (21,370,838.61)
Total fixed asset 6,284,736.00 3,508,512.00 5,203,230.63 3,612,863.21 4,541,377.00 5,203,230.63 5,792,577.00 4,046,617.00 4,206,924.05 5,792,577.00 4,541,377.00 4,113,377.39 56,847,398.91
Total Assets 8,735,101.00 6,447,274.00 6,944,694.40 5,498,150.21 6,749,814.85 6,944,694.40 7,386,011.00 6,895,409.10 6,300,981.05 7,386,011.00 6,749,814.85 6,676,312.39 82,714,268.25
current liability
Short term loan 78,045.00 102,000.00 541,060.00 80,032.05 541,060.00 150,000.00 1,492,197.05
Income tax payable 95,014.00 27,672.00 151,010.00 34,142.00 15,290.00 151,010.00 83,101.00 23,431.10 121,050.00 83,101.00 15,290.00 491,070.00 1,291,181.10
Creditors 931,940.00 903,946.00 733,124.48 774,089.00 893,800.00 733,124.48 996,342.00 803,622.00 869,175.00 996,342.00 893,800.00 585,108.39 10,114,413.35
Total Current Liability 1,026,954.00 1,009,663.00 884,134.48 910,231.00 909,090.00 884,134.48 1,620,503.00 827,053.10 1,070,257.05 1,620,503.00 909,090.00 1,226,178.39 12,897,791.50
Long term bank loan 1,505,900.00 1,055,000.00 1,844,900.00 920,784.21 1,245,000.00 1,844,900.00 1,744,631.00 1,872,900.00 1,612,000.00 1,744,631.00 1,245,000.00 1,892,003.00 18,527,649.21
Land lease payables 2,961,000.00 1,558,000.00 1,194,517.00 1,945,647.00 2,135,200.00 1,194,517.00 2,223,528.00 2,132,500.00 2,004,500.00 2,223,528.00 2,135,200.00 1,117,577.00 22,825,714.00
4,466,900.00 2,613,000.00 3,039,417.00 2,866,431.21 3,380,200.00 3,039,417.00 3,968,159.00 4,005,400.00 3,616,500.00 3,968,159.00 3,380,200.00 3,009,580.00 41,353,363.21
Total liability 5,493,854.00 3,622,663.00 3,923,551.48 3,776,662.21 4,289,290.00 3,923,551.48 5,588,662.00 4,832,453.10 4,686,757.05 5,588,662.00 4,289,290.00 4,235,758.39 54,251,154.71
Shareholder's Fund -
Share Capital 821,012.00 1,077,222.00 1,281,913.00 927,729.00 968,941.00 1,281,913.00 502,190.00 595,000.00 502,190.00 968,941.00 1,174,007.00 10,101,058.00
Legal reserve 930,235.00 784,274.00 825,991.92 695,608.85 825,991.92 404,148.00 476,916.00 762,063.00 404,148.00 695,608.85 702,919.00 7,507,904.54
Retained earnings 1,490,000.00 963,115.00 913,238.00 793,759.00 795,975.00 913,238.00 891,011.00 991,040.00 852,161.00 891,011.00 795,975.00 563,628.00 10,854,151.00
Total Shareholder's Fund 3,241,247.00 2,824,611.00 3,021,142.92 1,721,488.00 2,460,524.85 3,021,142.92 1,797,349.00 2,062,956.00 1,614,224.00 1,797,349.00 2,460,524.85 2,440,554.00 28,463,113.54
Total Liability & Shareho 8,735,101.00 6,447,274.00 6,944,694.40 5,498,150.21 6,749,814.85 6,944,694.40 7,386,011.00 6,895,409.10 6,300,981.05 7,386,011.00 6,749,814.85 6,676,312.39 82,714,268.25

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Evaluation of Financial and operating performance of floriculture firms in Ethiopia

A research project submitted to school of Graduate studies of

Department of Accounting and Finance

financial statements were collected.Moreover, primary data using unstructured

According to the findings presented in chapter four, floriculture industry is showing a

grower, exporters and retailers are among the recommendations given.

necessary assistance and co operation.

I am also grateful to the Ethiopian horticulture producers-exporters association (EHPEA)

Riyad, and W/rt Azeb for the provision of relevant materials.

Finally, I wish to express my sincere indebtedness to my Father Abebaw Kebede, my

love are an integral part of this research project.

Figure 4. 2: Export value of flower in USD for the year 2004-2008 37

Figure 4.3:Ratio of value to volume of stem for the year 2004-2008 38

Figure 4.4: Cultivated area in hectars for the year 2004-2008 40

Figure 4.6: Trends of current ratio of selected flower firms 43

Figure 4.7: Trends of quick ratio of selected flower firms 45

Figure 4.8: Trends of debt to asset ratio of selected flower firms 47

Figure 4.12: Trends of operating expense ratio of selected flower firms 52

Figure 4.13: Trends of ROI of selected flower firms 53

Figure 4.14: Trends of return on equity of selected flower firms 54

Table 4.1: Summary of unstructured interview Result 36

CA: -----------------------------Current asset

CL: ------------------------------Current liability

CR: -----------------------------Current ratio

DR: ------------------------------Debt ratio

EARO: --------------------------Ethiopian Agricultural Research Organization

EHPEA: -------------------------Ethiopian horticulture producers-exporters association

ETB: -----------------------------Ethiopian birr

GDP: -----------------------------Growth domestic product

MoFED: ---------------------- -- Ministry of Finance and Economic Development

PLC: ------------------------------Private limited company

QR: -------------------------------Quick ratio

ROE: -----------------------------Return on equity

ROI: ------------------------------Return on investment

TD: -------------------------------Total debt

TE: -------------------------------Total equity

USD: ----------------------------United States dollar

1.1. Background of the study

flowers to Europe. The Derge regime had established horticulture Development

and producers associations(EHPEA), 2005)).

favorable conditions (EHPEA, 2008). Ethiopia produce a broad range of Flowers,

vegetables, fruits,and herbs. A product of floriculture includes Roses, Gypsophilla,

Carnation, Hypericum, and Eryngium.

floriculture products are exported to diffrent countries including Holland, Germany,

assess the financial and operating performance of floriculture firms in Ethiopia.

this chapter, methodology is discussed followed by significance of the study in section

section 1.6 and 1.7 respectively

of floriculture firms in Ethiopia. Now a day, floriculture industry is generating foreign

to the following basic points.

due to transportation problem.

awareness in the domestic market.

the planned selling price.

industry are important for these emerging sector in the country.

 Evaluate export performance, expansion and productivity of the floriculture

 Evaluate the profitability of floriculture firms.

 Identify weakness and strength

reaching into conclusions.

financial performance to employees, management, and owners of the firms to

potential investors to take corrective actions regarding the investments in the