The comparative statements of cash flows for Cole Corporation, a manufacturer of high-quality suits for men, follow. To expand its markets and familiarity with its brand, the company attempted a new strategic diversification in 2011 by acquiring a chain of retail men’s stores in outlet malls. Its plan was to expand in malls around the country, but department stores viewed the action as infringing on their territory.

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 of 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
  • Files Included
Post your question