Active Corporation markets sports fashions and equipment primarily to young adults through sports retailers. In 2010, it attempted to expand its market by buying a retail chain of sports stores. The comparative statements of cash flows for 2010 and 2011 for Active Corporation follow.

Evaluate the success of the company’s strategy by answering the questions that follow.
1. What are the primary reasons cash flows from operating activities differ from net income? What is the effect on the acquisition in 2010? What conclusions can you draw from the changes in 2011?
2. Compute free cash flow for both years. What was the total cost of the acquisition? Is the company able to finance expansion in 2010 by generating internal cash flow?
What was the situation in 2011?
3. What are the most significant financing activities in 2010? How did the company finance the acquisition? Do you think this is a good strategy? What other issues might you question in financing activities?
4. Based on results in 2011, what actions was the company forced to take, and what is your overall assessment of the company’s diversificationstrategy?

  • CreatedSeptember 10, 2014
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