Question

Foot Locker, Inc., is a large global retailer of athletic footwear and apparel selling directly to customers and through the Internet. It includes the Foot Locker family of stores, Champs Sports, Footaction, Runners Point, and Sidestep. The following are a few of Foot Locker's investing and financing activities as reflected in a recent annual statement of cash flows.

a. Capital expenditures (for property, plant, and equipment).
b. Repurchases of common stock from investors.
c. Sale of short-term investments.
d. Issuance of common stock.
e. Purchases of short-term investments.
f. Dividends paid on common stock.

Required:
For activities (a) through (f), indicate whether the activity is investing (l) or financing (F) and the direction of the effect on cash flows (+ for increases cash; - for decreases cash).

Answer 1

Answer:

a. Capital expenditures (for property, plant, and equipment) : (l), -

b. Repurchases of common stock from investors : (F), -

c. Sale of short-term investments : (O) +

d. Issuance of common stock : (F) +

e. Purchases of short-term investments : (O) -

f. Dividends paid on common stock : (F) -

Explanation:

The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.

The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.  

The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.

An increase in assets other than cash is an outflow while an increase in liabilities is an inflow. Depreciation and other non-cash expenses deducted in the income statements are added back while the non-cash income such gain on asset are deducted from net income.