RadioShack Corporation is a consumer electronics retailer. Recently, the company declared bankruptcy to provide financial protection while attempting to reorganize its operations. Annual report information for the three most recent years prior to the bankruptcy are as follows (in millions): 1 Year 3 Year 2 Year 1 2 Cash flows from operating activities $36.00 $(43.00) $218.00 3 Cash used to purchase property, plant, and equipment (42.00) (68.00) (82.00) 4 Sales 3,434.00 3,831.00 4,032.00 a. Determine the free cash flow.* b. Determine the ratio of free cash flow to sales. Round percentages to one decimal place.* c. Did the free cash flow information indicate financial stress? Explain. *For those boxes in which you must enter subtractive or negative numbers use a minus sign. a. Determine the free cash flow. For those boxes in which you must enter subtractive or negative numbers use a minus sign. Year 3 Year 2 Year 1 Free cash flow b. Determine the ratio of free cash flow to sales. Round percentages to one decimal place. For those boxes in which you must enter subtractive or negative numbers use a minus sign. Year 3 Year 2 Year 1 Ratio of free cash flow to sales % % % c. Which of the following factors about the free cash flow indicate financial stress? Check all that apply. The amount of accounts receivable collected increased across the three years. The amount of cash used to purchase fixed assets reduced across the three years. The free cash flow and the ratio of free cash flow to sales were negative in the most recent years before bankruptcy. The free cash flow and the ratio of free cash flow to sales were positive in the most recent years before bankruptcy.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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RadioShack Corporation is a consumer electronics retailer. Recently, the company declared bankruptcy to provide financial protection while attempting to reorganize its operations. Annual report information for the three most recent years prior to the bankruptcy are as follows (in millions):

1		Year 3	Year 2	Year 1
2	Cash flows from operating activities	$36.00	$(43.00)	$218.00
3	Cash used to purchase property, plant, and equipment	(42.00)	(68.00)	(82.00)
4	Sales	3,434.00	3,831.00	4,032.00

	a. Determine the free cash flow.*
	b. Determine the ratio of free cash flow to sales. Round percentages to one decimal place.*
	c. Did the free cash flow information indicate financial stress? Explain.
	*For those boxes in which you must enter subtractive or negative numbers use a minus sign.

a. Determine the free cash flow. For those boxes in which you must enter subtractive or negative numbers use a minus sign.

	Year 3	Year 2	Year 1
Free cash flow

b. Determine the ratio of free cash flow to sales. Round percentages to one decimal place. For those boxes in which you must enter subtractive or negative numbers use a minus sign.

	Year 3	Year 2	Year 1
Ratio of free cash flow to sales	%	%	%

c. Which of the following factors about the free cash flow indicate financial stress?

Check all that apply.

The amount of accounts receivable collected increased across the three years.

The amount of cash used to purchase fixed assets reduced across the three years.

The free cash flow and the ratio of free cash flow to sales were negative in the most recent years before bankruptcy.

The free cash flow and the ratio of free cash flow to sales were positive in the most recent years before bankruptcy.

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