Cash Flow Case

Year 7 Profitable Year

In looking at what lead to the company's ultimate demise, a couple things stood out to me the most. In year 7 and year 8, everything in regards to cash flow was looking efficient. In year 7, their net income was $100 and their cash flow from operations was $155. The company broke even with Cash flow from investments and their cash flow from financing was -$516. This led them to $81 cash at the end of the year and 2% increase in sales. Everything seemed fine.

Year 8 Profitable Year

In year 8, net income was also positive. They actually had an increase in net income from $100 to $101. One thing that stood out to me in Year 8 and year 7 was in the "other subtractions" section they had no balance. This would change in the later years. Their cash flow from operations was lower than the year before but they still appeared to be in good shape. An the investing section, they had a balance of -$163. In Cash flow from Financing they recorded an amount of $51, which was a large positive jump from last year's income outflow of $516. To sum this year up they ended up with $98 in cash at the end of the year and recorded another increase in sales of 3.7%.

Year 9

In Year 9, this appeared to be Montgomery Ward's Golden year. Their net income was more than year 8 and year 7 at $109. Their cash flows from operations were also more than the 2 years before with $153. One thing that stood out to me was that they did buy a hefty amount of inventory with the decrease in inventory account of $229. This could have been due to their inventory selling at an excessive rate. Going into the investing section, we see that in fixed assets they acquired Lechmere , the discount retailer of sporting goods and electronic products, which cost $184. This led their cash flow from investing to increase to $301 from a $163 in the previous year. To sum up year 9, they had sales increase of 17.2% even though the cash at end of the year was $33. This was a great year.