Interpreting Cash Flows The statement of cash flows for Rowe Furniture Corporation is shown below. Based in Salem, Virginia, the firm manufactures upholstered household furniture including sofas, sofa beds, and chairs.
Required Use the statement of cash flows to answer the following questions.
A. What were Rowe’s primary sources of cash in 2001? Were these different than in the prior two years?
B. What were Rowe’s primary uses of cash in 2001? Were these different than in the prior two years?
C. What were the primary reasons for the decrease in cash flow from operating activities between 2000 and 2001?
D. Evaluate Rowe’s cash flows over the period shown. Has the company been able to finance its growth, dividends, and acquisition of treasury stock out of cash flow from operations? Explain.
E. Over the past three years, what were the primary reasons that cash flows from operations differed so much from net income?
F. The portion of the statement titled “Reconciliation of net earnings to net cash provided by operating activities” is a required disclosure. Of what does this section and presentation remind you? Might this disclosure requirement help explain why so few companies use the direct method? Explain.
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The Rowe Companies Annual Report 2001 |
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Year Ended |
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12/2/01 |
12/3/00 (53 weeks) |
11/28/99 |
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Increase (Decrease) In Cash |
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Cash flows from Operating Activities |
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Cash received from customers |
$329,683 |
$379,400 |
$295,563 |
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Cash paid to suppliers and employees |
328,948 |
354,570 |
274,870 |
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Income taxes paid, net of refunds |
585 |
6,183 |
7,726 |
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Interest paid |
4,642 |
5,693 |
2,686 |
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Interest received |
480 |
288 |
159 |
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Other receipts—net |
1,109 |
1,156 |
1,684 |
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Net cash and cash equivalents provided by (used in) |
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operating activities |
1,733 |
14,398 |
12,124 |
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Cash flows from Investing Activities |
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Proceeds from sale of property and equipment |
1,056 |
21 |
19 |
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Capital expenditures |
3,317 |
9,155 |
8,830 |
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Payments to acquire businesses |
5,160 |
8,892 |
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Net cash used in investing activities |
2,261 |
14,294 |
17,703 |
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Cash flows from Financing Activities |
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Net borrowings (payments) under line of credit |
5,368 |
164 |
2,071 |
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Proceeds from issuance of long term debt |
6,865 |
13,020 |
25,132 |
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Payments to reduce long term debt |
3,821 |
11,922 |
14,522 |
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Proceeds from loans against life insurance policies |
3,014 |
— |
— |
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Proceeds from issuance of common stock |
27 |
51 |
460 |
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Dividends paid |
1,379 |
1,849 |
1,714 |
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Purchase of treasury stock |
16 |
951 |
3,224 |
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Net cash provided by (used in) financing activities |
10,058 |
1,815 |
8,203 |
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Net increase (decrease) in cash and cash equivalents |
6,064 |
1,711 |
2,624 |
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Cash at beginning of year |
3,393 |
5,104 |
2,480 |
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Cash at end of year |
$9,457 |
$3,393 |
$5,104 |
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The Rowe Companies Annual Report 2001 |
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Year Ended |
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12/2/01 |
12/3/00 |
11/28/99 |
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Net earnings (loss) |
$6,189 |
$3,544 |
$13,901 |
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Adjustments to reconcile net earnings (loss) to net |
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cash provided by (used in) operating activities, net |
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of acquisition and disposition of businesses |
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Loss on disposition of Wexford |
— |
5,455 |
— |
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Depreciation and amortization |
8,569 |
8,581 |
6,165 |
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Provision for deferred compensation |
173 |
816 |
1,083 |
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Payments made for deferred compensation |
813 |
160 |
319 |
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Deferred income taxes |
1,001 |
2,099 |
472 |
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Provision for losses on accounts receivable |
4,421 |
1,485 |
413 |
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Loss (gain) on disposition of assets |
15 |
29 |
4 |
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Change in operating assets and liabilities net of |
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effects of acquisition and disposition of businesses |
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Decrease (increase) in accounts receivable |
4,649 |
5,564 |
9,379 |
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Decrease (increase) in inventories |
227 |
832 |
5,692 |
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Decrease (increase) in prepaid expenses and other |
1,679 |
887 |
795 |
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Decrease (increase) in other assets |
352 |
472 |
1,210 |
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Increase (decrease) in accounts payable |
10,277 |
4,750 |
3,830 |
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Increase (decrease) in accrued expenses |
4,433 |
1,715 |
2,170 |
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Increase (decrease) in customer deposits |
403 |
1,105 |
2,425 |
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Total adjustments |
4,456 |
10,854 |
1,777 |
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Net cash provided by (used in) operating activities |
($1,733) |
$14,398 |
$12,124 |