Examine the operating activities section of RONA’s cash flow statement and Note 7 to the financial statements. What was RONA’s cash flow from operations in 2008? Why was cash from operations so different from net income in 2008? By how much did RONA’s inventory change in 2008? What was the impact of the change in inventory on cash from operations? Explain why the change has that effect. Do you think RONA will be able to decrease inventory by similar amounts next year? Explain.

RONA Inc. (RONA) is the largest distributor and retailer of hardware, home renovation, and gardening products in Canada. It operates a network of over 680 corporate, franchise, and affiliate stores of various sizes and formats. With over 27,000 RONA employees across Canada, the store network generates over $6.3 billion in annual retail sales. RONA’s mission is to offer the best service and the right product at the right price to North American consumers of housing and home improvement products. RONA is listed on the TSX under the symbol RON.’
RONA’s consolidated balance sheets and statements of earnings and cash flows, along with extracts from the notes to the financial statements and extracts from management’s discussion and analysis, are provided in Exhibit 7.3.

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EXHIBIT 7.3 RONA Inc.: Extracts from Financial Statements CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets December 28, 2008 and December 30, 2007 On thousands of dollars) Assets Current assets Cash Accounts receivable (Note 9) Income taxes receivable Inventory (Note 4) Prepaid expenses Derivative financial instruments (Note 21) Future income taxes (Note 6 Investments (Note 10 Fixed assets (Note 11) Fixed assets held for sale (Note 12) Goodwill Trademarks (Note 13) Other assets (Note 14) Future income taxes (Note 6) Liabilities Current liabilities Bank loans (Note 15) Accounts payable and accrued liabilities Derivative financial instruments (Note 21) Future income taxes (Note 6) Instalments on long-term debt (Note 16) 2008 2007 $ 12,345 $ 2,866 234,027 237,043 5,684 6,046 763,239 33,104 1,089 13,800 1,063,650 10,186 875,634 34,870 454,889 3,797 856,326 24,249 1,168 12,279 1,139,615 11,901 816,919 454,882 4.145 32,349 38,466 24,681 22,635 $2,506,173 $2,482,446 $ 8,468 422,318 2,180 4,854 15,696 $ 19,574 421,446 1,067 3,650 34,239