“I doubt my eating these Cheerios will boost their ability to pay me dividends,” you quip, referring to General Mills, the maker of the best-selling breakfast cereal. It’s General Mills’ dividend-paying ability, in fact, that you plan to investigate right after breakfast. After discovering that General Mills provides shareholders a 3.6% dividend yield and its stock price had increased by 20% this year, you decided to look at the company as a potential investment target. But you also heard that the dividend yield was supported by General Mills paying out more than half its income as dividends, and that its net income followed “an inconsistent pattern” over the last three years. “Maybe I should take a closer look,” you decided. You decided that cash flow generated by operations would provide another perspective beyond net income. Also, you know from your experience as an auditor that many analysts like to look at “free cash flow”—cash flow from operations minus capital expenditures—to evaluate how efficient a company is at generating cash and whether a company might have enough cash, after funding operations and capital expenditures, to pay investors through dividends and share buybacks. Swapping your cereal bowl for your laptop, you locate the statement of cash flows from General Mill’s 2020 10-K for the year ended May 31, 2020, from “investor relations” at www.generalmills.com.

Required:
1. How does the pattern of cash flows from operating activities compare with that of net income for the most recent three years?
2. Determine free cash flows for General Mills in each of the three years reported.
3. Compare that amount with cash flows from operating activities each year. What pattern do you detect?