Longs Jewelers Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Question 1
Complete a three-year financial analysis of Longs Jewelers including cash flow statements and ratio analysis for each year and discuss your findings.
The financial ratio analysis has been completed for Long Jewelers for three-year period from 2002 to 2003. The cash flow statements for this period are shown below:
Cash Flow Statement
For the Years Ending June 30, 2002, 2003, and 2004
2000 2001 2002
2002 2003 2004
Cash Flow from Operating Activities
Net Income Before Tax 22,466 -29,707 17,701
Depreciation 19,047 18,672 16,738
Interest Expense* 7,670 3,812 11,696
Cash Flow from Income Statement Acct 49,183 -7,223 46,135
Change in Current Accounts
Accounts Receivable -1,786 -1,100 -632
Inventory 1,787 -76,782 -12,104
Accounts Payable -11,743 0 1,328
Cash Flow from Operating Activities 60,927 68,459 58,935
Cash Flow from Investing Activities
Change in Equipment -11,293 1,458 -3,610
Change in Other Assets 0 -1458 0
Cash Flow from Investing Activities -11,293 0 -3,610
Cash Flow from Financing Activities
Interest Expense* -7,670 -3,812 -11,696
Change in Loans from Shareholders -1,271 -2,000 27,977
Change in Notes Payable -5,531 -67,410 -62,752
Change in Common Stock 0 0 0
Dividends 0 0 0
Prior Period Adjustments -6,417 0 1,669
Cash Flow from Financing Activities -20,889 -73,222 -44,802
Net Cash Flow 28,745 -4,763 10,523
Beginning Cash Balance -4,824 433 -2,130
Ending Cash Balance 23,921 -4,330
Longs Jewelers Harvard Case Solution & Analysis
Cash flow is one of the most important aspects of any business and the discussion of the impact on cash on Long Jewelers is very important. A positive increase in cash is shown from the operating activities and most of the cash comes from the income statement activities. The interest expense was also moved to finance section and the addition of the depreciation as non-cash charge helped to boost the cash flow.
The inventory has reduced, increasing the operating cash flow and this shows that Long Jewelers has adopted a more aggressive working capital strategy for reducing the level of the inventory on the balance sheet. However, this is a risky strategy and stores of the company need to maintain a reasonable amount of inventory for the walk in customers. The cash flow from investing activities shows that in the last few years less cash has been invested for buying new PPE and this has a positive impact on cash.
Finally, the net cash flow from financing activities shows a negative trend, especially in the last 2 years. Bob has always strived to reduce the level of the debt and he has paid the creditors by taking personal loans in 2004. Despite the decrease in total debt, the interest expense increased in 2003. This might be due to the high credit risk shown by the company. The case does not provide any evidence of dividends. Overall, the cash flow position is not strong and Bob has been doing his best to improve it but the margin of error is too small....................