Required: a. Staples reports a net income of $379 million and net cash inflows from operating activities of $978 million. Part of the difference relates to depreciation of $388 million and amortization of $67 million. Why does Staples add these amounts in the computation of operating cash flows? b. Staples reports a positive amount of $63 million relating to stock-based compensation. What does this positive amount signify? (Hint: When shares of stock-based compensation are awarded to employees, companies estimate the fair value of the award and recognize the fair value as compensation expense in the income statement.) C. Staples reports a cash outflow of $381 million relating to the acquisition of PPE (Property, Plant, and Equipment). Is this cash outflow a cause for concern? Explain. d. Staples' net cash flows from financing activities is $(378) million. For what purposes is Staples using this cash? e. Calculate the operating cash flow to capital expenditures (cash paid for PPE) ratio. What do these ratios measure? f. The cash balance increased by $198 million during the year. Does Staples present a healthy" cash flow picture for the year? Explain. Interpreting the Statement of Cash Flows Following is the statement of cash flows of Staples Inc. January 30, 2016 $379 388 67 5 50 1 63 (5) 28 11 STAPLES INC. Consolidated Statements of Cash Flows Fiscal Year Ended ($ Millions) Operating Activities: Consolidated net income. Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.. Amortization of intangibles. Loss on sale of businesses and assets, net. Impairment of goodwill and long-lived assets Inventory write-downs related to restructuring activities. Stock-based compensation... Excess tax benefits from stock-based compensation arrangements Deferred income tax expense Other... Changes in assets and liabilities: Increase in receivables... Decrease increase) in merchandise inventories (Increase) decrease in prepaid expenses and other assets. Increase (decrease) in accounts payable.. Increase (decrease) in accrued expenses and other liabilities (Decrease) increase in other long-term obligations Net cash provided by operating activities Investing Activities: Acquisition of property and equipment Cash paid for termination of joint venture Proceeds from the sale of property and equipment. Sale of businesses, net Acquisition of businesses, net of cash acquired Net cash used in investing activities Financing Activities: Proceeds from the exercise of stock options and sale of stock under employee stock purchase plans Proceeds from borrowings. Payments on borrowings, including payment of deferred financing fees and capital lease obligations Cash dividends paid... Excess tax benefits from stock-based compensation arrangements Repurchase of common stock. Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents. Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period .. (19) 18 (41) 63 110 (140) 978 (381) 27 2. (22) (374) 41 7 (99) (308) 5 (24) (378) (28) 198 627 $825