Textbook Problem

Profitability Declines and the Statement of Cash Flows

The Bookbarn Inc. is a retail seller of new books in a moderate-sized city. Although initially very successful, The Bookbarn’s sales volume has declined since the opening of two competing bookstores 2 years ago. The accountant for The Bookbarn prepared the following statement of cash flows at the end of the current year:

Your analysis suggests that The Bookbarn’s net income will continue to decline by $8,000 per year to $18,500 as sales continue to fall. Thereafter, you expect sales to stabilize.

Do the operations of businesses experiencing declining sales volumes always consume cash? Explain your answer.