Montgomery Ward operates a retail department store chain. It filed for bankruptcy during the first quarter of Year 12. Exhibit 3.27 presents a statement of cash flows for Montgomery Ward for Year 7 to Year 11. The firm acquired Lechmere, a discount retailer of sporting goods and electronic products, during Year 9. It acquired Amoco Enterprises, an automobile club, during Year 11. During Year 10, it issued a new series of preferred stock and used part of the cash proceeds to repurchase a series of outstanding preferred stock. The “other subtractions” in the operating section for Year 10 and Year 11 represent reversals of deferred tax liabilities.

Required
Discuss the relationship between net income and cash flow from operations and between cash flows from operating, investing, and financing activities for the firm over the five-year period. Identify signals of Montgomery Ward’s difficulties that might have led to its filing for bankruptcy.