P3.26 TA 1, 2 Analyzing and Interpreting Cash Flow Data: A Growing Enterprise. Presented below are cash flow data for L.A. Gear Inc. During this period of time, the manufacturer of athletic shoes and sportswear experienced a 1200 percent growth in net income. L.A. GEAR INC. Statement of Cash Flow For Year Ended 12/31 Year 3 Year 2 Year 1 $22,030 446 $ 4,371 133 (in thousands) Cash flow from operations Net income. Depreciation.. Noncash compensation to employees. Increase in accounts receivable. Increase in inventories .. Increase in prepayments Increase in accounts payable..... Increase (decrease) in other current liabilities Cash flow from operations... (12,410) $55,059 1,199 558 (51,223) (72,960) (8,624) 17,871 10,587 (47,533) (1,990) (34,378) (50,743) (2,432) 7,197 11,193 (599) 1,656 (537) (9,376) (46,687) (in thousands) Year 3 Year 2 Year 1 (6,168) (246) (6,414) (2,546) (406) 5,661 (874) (241) (2,952) 4,546 Cash flow from investing Sale of marketable securities Acquisition of property, plant & equipment. Acquisition of other noncurrent assets. Cash flow from investing. Cash flow from financing Increase (decrease) in short-term borrowing .... Issue of common stock Cash flow from financing Change in cash 4,566 50,104 495 (19,830) 69,925 50,095 $ (3,852) 50,599 $ 960 4,566 $ (264) Required 1. Explain why the cash flow from operations is negative. 2. How did the company finance its operations during the three-year period? Explain the logic of this strategy. 3. Depreciation expense as a percent of net income is only two to three percent during this period. What might explain this