Textbook Problem

Communication

Tidewater Inc., a retailer, provided the following financial information for its most recent fiscal year:

Net income	$ 945,000
Return on invested capital	8%
Cash flows from operating activities	(1,428,000)
Cash flows from investing activities	600,000
Cash flows from financing activities	900,000

The company’s Cash Flows from Operating Activities Section is as follows:

Net income	$ 945,000
Depreciation	210,000
Increase in accounts receivable	(1,134,000)
Increase in inventory	(1,260,000)
Decrease in accounts payable	(189,000)
Net cash flow from operating activities	$(1,428,000)

An examination of the financial statements revealed the following additional information:

• Revenues increased during the year as a result of an aggressive marketing campaign aimed at increasing the number of new “Tidewater Card" credit card customers. This is the company’s branded credit card, which can only be used at Tidewater stores. The credit card balances are accounts receivable on Tidewater’s balance sheet.
• Some suppliers have made their merchandise available at a deep discount. As a result, the company purchased large quantities of these goods in an attempt to improve the company’s profitability.
• In recent years, the company has struggled to pay its accounts payable on time. The company has improved on this during the past year and is nearly caught up on overdue payables balances.
• The company reported net losses in each of the two prior years.

Write a brief memo to your instructor evaluating the financial condition of Tidewater Inc.