Analyze a statement of cash flows. (LO 7, 8)

The following is the statement of cash flows for Chico's FAS Inc. for the years ended January 28, 2006, January 29, 2005 and January 31, 2004.

Answer the following questions:

a. Does Chico's use the direct or the indirect method of preparing the statement of cash flows?

b. Did receivables increase or decrease during the most recent fiscal year?

c. Why is depreciation, a noncash expense, included on the statement of cash flows?

d. On the three years' statements, inventory is shown as a negative number (subtracted). Describe what happened to the balance in the inventory account during each of those years.

e. Did the balance in accounts payable increase or decrease during the most recent year? Explain.

f. Do you think Chico's is expanding? Find some numbers to support your answer.
g. Calculate Chico's free cash flow for all three years. What do these values indicate?
h. Do you see any particular risks indicated by Chico's cash flow patterns?

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Chico's FAS, Inc, and Subsidiaries Consolidated Statements of Cash Flows fin thousands) January 28, 2006 Fiscal Year Ended January 29, 2006 January 31, 2004 Cash flows from operating activities Net income $ 193,981 $141,206 $ 100,230 Adjustments to reconcile net income to net cash provided by operating activities.-- Depreciation and amortization, cost of goods sold 4.651 3,605 1,970 Depreciation and amortization, other 44.201 32,481 21,130 Deferred tax (benefit) expense (8,411) (2,886) 1,336 Stock-based compensation expense 1,615 Tax benefit of stock options exercised 21,461 27,297 15,126 Deferred rent expense, net 3,673 6,450 1,874 Loss on impairment and disposal of property and equipment 753 311 3,746 Decrease (increase) in assets, net of effects of acquisition- Receivables, net (7,147) 1,069 (1,053) Inventories (22,198) (18,280) (4,658) Prepaid expenses and other (5,955) (2,734) (1,281) Increase (decrease) in liabilities, net of effects of acquisition-