1. Explain why the cash flow from operations is negative. 2. How did the company finance its operations during the three-year period? Explain the logic of this strategy. 3. Depreciation expense as a percent of net income is only two to three percent during this period. What might explain this?
L.A. GEAR INC. Statement of Cash Flow For Year Ended 12/31 (in thousands) Year 3 Year 2 Year 1 $55,059 1,199 558 Cash flow from operations Net income. ............ Depreciation ... Noncash compensation to employees Increase in accounts receivable.. Increase in inventories ............ Increase in prepayments ... Increase in accounts payable... Increase (decrease) in other current liabilities .. Cash flow from operations. ...... (51,223) (72,960) (8,624) 17,871 10,587 $22,030 446 - (34,378) (50,743) (2,432) 7,197 11,193 (46,687) $ 4,371 133 (12,410) (1,990) (599) 1,656 (537) (9,376) (47,533) continued continued from previous page (in thousands) Year 3 Year 2 Year 1 (6,168) (246) (6,414) (2,546) (406) (2,952) 5,661 (874) (241) 4,546 Cash flow from investing Sale of marketable securities. ..... Acquisition of property, plant & equipment....... Acquisition of other noncurrent assets. ...... Cash flow from investing Cash flow from financing Increase (decrease) in short-term borrowing ..... Issue of common stock Cash flow from financing ................. Change in cash. ................ 4,566 (19,830) 69,925 50,095 $ (3,852) 50,104 495 50,599 $ 960 4,566 $ (264) L.A. GEAR INC. Statement of Cash Flow For Year Ended 12/31 (in thousands) Year 3 Year 2 Year 1 $55,059 1,199 558 Cash flow from operations Net income. ............ Depreciation ... Noncash compensation to employees Increase in accounts receivable.. Increase in inventories ............ Increase in prepayments ... Increase in accounts payable... Increase (decrease) in other current liabilities .. Cash flow from operations. ...... (51,223) (72,960) (8,624) 17,871 10,587 $22,030 446 - (34,378) (50,743) (2,432) 7,197 11,193 (46,687) $ 4,371 133 (12,410) (1,990) (599) 1,656 (537) (9,376) (47,533) continued continued from previous page (in thousands) Year 3 Year 2 Year 1 (6,168) (246) (6,414) (2,546) (406) (2,952) 5,661 (874) (241) 4,546 Cash flow from investing Sale of marketable securities. ..... Acquisition of property, plant & equipment....... Acquisition of other noncurrent assets. ...... Cash flow from investing Cash flow from financing Increase (decrease) in short-term borrowing ..... Issue of common stock Cash flow from financing ................. Change in cash. ................ 4,566 (19,830) 69,925 50,095 $ (3,852) 50,104 495 50,599 $ 960 4,566 $ (264)
