Analysis:

i. What is the main reason why their Cash Flows from Operations are higher than Net Income? Is this sustainable?

Net Income is derived from accumulation of all the income and expenses which are relevant to the whole entity according to accounting conventions. These figures are bound to follow the concepts of Prudence and Accruals. Which says that expense should be recorded when it can be foresee. Whereas cash flows statement only consists of all the cash movements within the business. Cash flow tends to deduct or add any movements which cannot be justifiable in monetary term or within which the cash is not involved.

ii. Provide a likely and economically sound reason why this company has both an extremely high Gross Margin and a negative Operating Margin.

Acme Packet is in session delivery network solutions and is vulnerable to both technological advancement and marketing its product. The fact that Gross Margin is high because the cost of providing this service is low but generates high profit margin. But however due to vulnerability to technological advancements they must incur tons of money into their research and development program in order to upgrade its solutions. Acme Packet must also have to incur heavy marketing cost in order to showcase their solutions due to fierce competition among the players in IT industry.

Gross Margin is (Total Revenue minus Total Cost of Goods Sold) divided by Total Revenue.
Operating Margin is (Total Revenue minus Total Operating Expenses) divided by Total Revenue.

Mechanics:

iii. Why do we add back a decrease to Accounts Receivable?

A decrease in Accounts Receivable indicates that one of our customer had paid his owed account. When a customer pay his / her outstanding balance the accounting treatment is to decrease accounts receivable and increase the cash or bank amount. Since in Cash Flow