Question

Using Statement of Cash Flow Information to Assess Company Life-Cycle Stage Use the following information, taken from the 2016 statement of cash flow from each of the respective companies, to complete the requirements. Company ($ millions) Logitech International.... Steelcase Inc. ......... Chico's FAS Ino........ Vista Outdoor Ino........ Avnet Inc.. ......... Cash from Operations $183.111 186.400 196.991 198.002 224.315 Cash from Investing $(60.690) (87.800) 0.491 (503.204) (152.513) Cash from Financing $(141.669) (90.100) (240.381) 192.600 33.355 Required a. Identify each company's life-cycle stage (introduction, growth, maturity, or decline). b. Rank-order each company from least to most mature. (Hint: All five companies have cash from opera- tions of about $200 million. Graph the cash from investing and from financing, and then use the graphic (showing revenue, income, and cash flow by life cycle) to evaluate the relative size of the three types of cash flow.)

Answer 1

Life cycle Stage	Company	Determining Indicators
Introduction	Vista Outdoor Inc	Significant external Funding obtained for significant investments compared to cash from operation
Growth	Avnet Inc	External Funding obtained for significant investments compared to cash from operation
Maturity	Logitech International, Steelcase Inc	Use of cash flows for Investment and repayment of financing
Decline	Chico Fas Inc	Minimum investment and repayment of debts

Sr. No.	Maturity ranking
1	Chico Fas Inc
2	Logitech International
3	Steelcase Inc
4	Avnet Inc
5	Vista Outdoor Inc

Introduction Stage : During the initial introduction of a product or business, revenues are minimal; therefore, net income and net cash flows from operating and investing activities are typically low or negative, and the firm relies heavily on cash flows from financing activities

Growth Stage : As the growth phase accelerates, operations become profitable and begin to generate cash. However, firms must use the cash generated to fund activities such as selling products on credit (that is, accounts receivable) and building up inventory in anticipation of higher sales volume in the future. Thus, because these expenditures are accounted for as assets on the balance sheet rather than being expensed immediately, compared to cash flows from operations, net income usually turns positive earlier than do cash flows. The extent of the negative cash flows from investing activities depends on the rate of growth and the degree of capital expenditure needs and asset intensity. Continuing from the introduction phase, firms obtain most of the cash they need during the introduction and growth phase by borrowing or issuing stock to external investors

Maturity : As products and businesses move through the maturity phase, the cash flow pattern changes dramatically. Operations become profitable and generate substantial positive cash flows because of market acceptance of the product and a leveling off of working capital needs and asset acquisitions. Also, with revenues leveling off, firms invest to maintain rather than increase productive capacity. During the later stages of the maturity phase, net cash flows from sales of unneeded plant assets sometimes result in a net positive cash flow from investing activities. Firms can use the excess cash flow from operations and, to a lesser extent, from the sale of investments to repay debt incurred during the introduction and growth phases, to pay dividends, and to repurchase outstanding common stock

Decline : During the decline phase, cash flows from operations and investing activities taper off as customers become satiated or switch to alternative products, thus decreasing sales. At this point, firms use cash flows to repay outstanding debt from the introduction and growth phases and can pay dividends or repurchase common stock from equity investors.