Financial Accounting: An Integrated Statements Approach, 2nd Edition

2004 2003

Cash flow from operating activities $1,361 $667

Net income 705 99

1. Compute the ratio of cash flow to net income for 2004 and 2003. Round to one decimal place.


2. In 2004, Best Buy reported a loss from discontinued operations of $95 million. In 2003, Best
   Buy reported a loss from discontinued operations of $441 million and a reduction of income
   from an accounting change of $82 million. Compute the ratio of cash flow to net income for
   2004 and 2003 taking into consideration the impact of the discontinued operations and ac-
   counting change on net income. Round to one decimal place.


3. Based upon (2), is the ratio of cash flow to net income comparable between 2004 and 2003?


4. Further review of the statement of cash flows reveals that inventories increased by $282 mil-
   lion in 2004 over the level of change in 2003. In addition, operating liabilities increased by
   $588 million over the level of change in 2003. Taking into account this change in inventory
   and operating liabilities on cash flows and your results from (2), compute the ratio of cash
   flow to net income for 2004.


5. Based upon (4), is the ratio of cash flow to net income for 2004 more comparable to the
   ratio for 2003 computed in (2)?

OccuLogix Inc.provides treatments for eye diseases, including age-related macular degenera-

tion (AMD). The company’s treatment system, called the RHEO system, consists of an

Octonova pump and disposable treatment sets that improve microcirculation in the eye by fil-

tering high molecular weight proteins and other macromolecules from the patient’s plasma.

OccuLogix reported the following data (in thousands) for the years ending December 31, 2004,

2003, and 2002:

2004 2003 2002

Cash as of December 31* $60,040 $1,239 $ 603

Net cash flows from operating activities (5,382) (2,375) (2,126)

* Includes cash equivalents and short-term investments.

1. Determine the monthly cash expenses for 2004, 2003, and 2002. Round to one decimal place.


2. Determine the ratio of cash to monthly expenses as of December 31, 2004, 2003, and 2002.
   Round to one decimal place.


3. Based upon (1) and (2), comment on OccuLogix’s ratio of cash to monthly operating ex-
   penses for 2004, 2003, and 2002.

Acusphere Inc.is a specialty pharmaceutical company that develops new drugs and improved

formulations of existing drugs using its proprietary microparticle technology. Currently, the

company has three products in development in the areas of cardiology, oncology, and asthma.

Acusphere reported the following data (in thousands) for the years ending December 31, 2004,

2003, and 2002.

2004 2003 2002

Cash as of December 31* $45,180 $54,562 $ 7,992

Net cash flows from operating activities (19,319) (15,507) (17,682)

* Includes cash equivalents and short-term investments.

1. Determine the monthly cash expenses for 2004, 2003, and 2002. Round to one decimal place.


2. Determine the ratio of cash to monthly expenses as of December 31, 2004, 2003, and 2002.
   Round to one decimal place.


3. Based upon (1) and (2), comment on Acusphere’s ratio of cash to monthly operating expenses
   for 2004, 2003, and 2002.

348 Chapter 7 Sarbanes-Oxley, Internal Control, and Cash

Case 7-7

Cash to monthly cash

expenses ratio

Case 7-8

Cash to monthly cash

expenses ratio