Interpreting the statement of cash flows

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Reference no: EM131135417

INTERPRETING THE STATEMENT OF CASH FLOWS. Montgomery Ward operates a retail department store chain. It filed for bankruptcy during the first quarter of Year 12. Exhibit 3.27 presents a statement of cash flows for Montgomery Ward for Year 7 to Year 11. The firm acquired Lechmere, a discount retailer of sporting goods

Year 11 Year 10			Year 9	Year 8	Year 7
	OPERATIONS
	Net income	$(237)	$ (9)	$ 109	$ 101
	Depreciation	122	115	109	98	97
	Other addbacks	13	8	24	25	32
	Other subtractions	(197)	(119)	(29)	-	-
	(Increase) Decrease in accounts receivable	(32)	(54)	(38)	(9)	9
	(Increase) Decrease in inventories	225	(112)	(229)	(204)	(38)
	(Increase) Decrease in prepayments	27	(32)	(39)	(58)	36
	Increase (Decrease) in accounts payable	(222)	85	291	148	(17)
	Increase (Decrease) in other
	current liabilities	(55)	(64)	(45)	28	(64)
	Cash Flow from Operations	$(356)	$(182)	$ 153	$ 129	$ 155
	INVESTING
	Fixed assets acquired	$ (75)	$(122)	$(184)	$(142)	$(146)
	Change in marketable securities	20	(14)	(4)	(27)	137
	Other investing transactions	(93)	27	(113)	6	9
	Cash Flow from Investing	$(148)	$(109)	$(301)	$(163)	$ -
	FINANCING
	Increase in short-term borrowing	$ 588	$ 16	$ 144	$ -	$ -
	Increase in long-term borrowing	-	205	168	100	-
	Issue of capital stock	3	193	78	1	1
	Decrease in short-term borrowing	-	-	-	-	-
	Decrease in long-term borrowing	(63)	(17)	(275)	(18)	(403)
	Acquisition of capital stock	(20)	(98)	(9)	(11)	(97)
	Dividends	(9)	(4)	(24)	(23)	(19)
	Other	-	-	1	2	2
	Cash Flow from Financing	$ 499	$ 295	$ 83	$ 51	$(516)
	Change in Cash	$ (5)	$ 4	$ (65)	$ 17	$(361)
	Cash-Beginning of year	37	33	98	81	442
	Cash-End of Year	$ 32	$ 37	$ 33	$ 98	$ 81
	Change in sales from previous year	-10.0%	-.5%	+17.2%	+3.7%	+2.0%

and electronic products, during Year 9. It acquired Amoco Enterprises, an automobile club, during Year 11. During Year 10, it issued a new series of preferred stock and used part of the cash proceeds to repurchase a series of outstanding preferred stock. The "other subtractions" in the operating section for Year 10 and Year 11 represent reversals of deferred tax liabilities.

Required

Discuss the relationship between net income and cash flow from operations and between cash flows from operating, investing, and financing activities for the firm over the five-year period. Identify signals of Montgomery Ward's difficulties that might have led to its filing for bankruptcy.

Reference no: EM131135417

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