Interpreting the Effects of Sales Decline s and Changes in Receivables on Cash Flow from Operations
Stride Rite Corporation manufacture s and markets shoes under the brand names Stride Rite, Keds, and Sperry Top-Sider, Three recent years produced a combination of declining sales revenue and net income culminating in a net loss of 58,430,000. Each year, however, Stride Rite was able to report positive cash flows from operations. Contributing to that positive cash flow was the change in accounts receivable. The current and prior year balance sheets reported the following:
(dollars in thousands) | ||
| Cu r rent Year | Previous Year |
Accounts and notes receivable. less allowances | $48,066 | $63.403 |
Required:
1. On the current year’s cash flow statement (indirect method how would the change in accounts receivable affect cash flow from operations? Explain why it would have this effect.
2. Explain how declining sales revenue often leads to (a) declining accounts receivable and (b) collections from customers being higher than sales, revenue
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