What follows are the consolidated statements of cash flows of Best Buy Company, Inc. The information provided in the annual report has been combined and abbreviated.

The following data are based on information provided by the company in its SEC filings:
Best Buy Co., Inc. is the nation’s largest volume specialty retailer of name-brand consumer electronic, home office equipment, entertainment software, and appliances. Part of the Company’s strategy is to provide a selection of brand name products comparable to retailers that specialize in the Company's principal product categories and seeks to ensure a high level of product availability for customers. The number of stores operated by the company increased from 272 at the end of Year 0, to 284, 311, and 357 at the end of Year 1, Year 2, and Year 3, respectively.
When entering a major metropolitan market, the Company establishes a district office, service center, and major appliance warehouse. Each new store requires working capital of approximately \($4\) million for merchandise inventory (net of vendor financing), leasehold improvements, fixtures, and equipment. Preopening costs of approximately \($600,000\) per store are incurred through hiring, relocating and training new employees, and in merchandising the store. These costs are expensed as incurred.

Required:
1. Using information provided in the cash flow statement, compare Best Buy’s earnings and cash flows from operations for the last three years and provide an explanation for the differences between these two numbers within each year and from year to year. Explain whether earning or operating cash flows provide a better indication of Best Buy’s performance.
2. How have new store openings affected Best Buy’s working capital needs over the last three years? Compare the company’s actual changes in working capital to the working capital needed to support new store openings and comment on any differences.
3. Comment on the year-to-year changes in inventories for the last three years and how these changes have been financed.
4. Comment on any insights gained from an analysis of the Investing and Financing section of Best Buy’s cash flow statement.

Transcribed Image Text:

Consolidated Statements of Cash Flows ($ in thousands) February 26 Year 3 For the Fiscal Years Ended February 27 Year 2 February 28 Year I Operating Activities Net earnings $347,070 $216,282 $ 81,938 Depreciation, amortization and other noncash charges 109,541 78,367 71,584 456,611 294,649 153,522 Changes in operating assets and liabilities Receivables (56,900) (36,699) (16,121) Merchandise inventories (137,315) 14,422 71,271 Other assets (11,005) (4,251) (3,278) Accounts payable 302,194 249,094 147,340 Other liabilities 108,829 82,544 63,950 Accrued income taxes 97,814 62,672 33,759 Total cash provided by operating activities 760,228 662,431 450,443 Investing Activities Additions to property and equipment (361,024) (165,698) (72,063) (Increase) decrease in recoverable costs from developed properties (21,009) (65,741) 45,270 (Increase) decrease in other assets (18,081) (18,128) 4,494 Total cash used in investing activities (400,114) (249,567) (22,299) Financing Activities Long-term debt payments (29,946) (165,396) (22,694) Long-term debt borrowings -0- ---0- 10,000 Issuance of common stock 32,229 20,644 14,869 Repurchase of common stock (397,451) (2,462) -0- Total cash (used in) provided by financing activities (395,168) (147,214) 2,175 Increase (Decrease) in Cash and Cash Equivalents $(35,054) $265.650 $430.319