Candela Corporation has volatile cash flow from operating activities (CFO) over the three years from 2002 to 2004. The firm experienced a net loss in 2002, but has since recorded net profits in 2003 and 2004. CFO was negative and much worse than the net loss in 2002. In 2003, CFO was positive and greater than net income, but in 2004, CFO took a plunge, though still positive, was much less than net income.

Accounts receivable grew each year and this has reduced CFO especially in 2002 and 2004. With the exception of 2003 inventories have been increasing, also causing a reduction in CFO. The increases in accounts receivable and inventories could be due to an expansion or poor management of assets. The firm has reduced accounts payable all years despite the current asset increases. In 2003, the income Tax Payable account increased causing CFO to be over $4 million higher than it otherwise would have been, but the impact in 2004 was a reduction in this account causing CFO to be less. Other negative impacts to CFO in 2004 included increases to other current asset accounts and the tax effects of stock options being exercised.

Candela has generated cash from the issuance of common stock all three years; however, this source of cash should not be relied on for future cash inflows. The firm needs to focus on increasing CFO. Other than use of a line of credit in 2002, the firm has not used short-term or long-term debt. Since Candela operates globally, foreign exchange rate effects have positively impacted the cash flows of the firm.

Candela's only investments are purchases of property, plant and equipment, but the dollar amount of investment declined significantly in 2004. Since the firm discontinued operations, this could be the reason for fewer capital expenditures.

No other cash was used in 2004, but the firm did repurchase a significant amount of