Land's End Case Analysis

Question a
Lands’ End recently implemented a strategy of filling nearly all orders when the order is placed. In what year do you believe the company implemented this strategy and how is the strategy reflected in the information contained in the statement of cash flows?

It is year 8 that Lands’ End implemented the strategy.
Since the strategy tends to fill all orders at once, the company should has enough inventory to sustain such Just in Time service. Therefore, the company should be purchasing a big amount of inventory the year the strategy implemented.
According to the financial information given, year 8 shows a big increase in inventory.
Thus, we believe it is year 8 that the new strategy implemented.

Question b
Explain how the following items reconcile net income to net cash flows from operating activities:
(1) Depreciation
Depreciation expense represents the allocation of the cost of fixed assets over the useful life of the asset. Amortization expense represents the allocation of the cost of intangible assets over the useful life of the asset. In each of these cases, the investing cash outflow occurs when the asset is acquired, but not when its cost is allocated to expense.
(2) Receivables
Increases in receivables cause operating cash flows to be less than net income because revenues are included in net income, but the related cash may not yet be received. On contrary, decreases in receivables cause operating cash flows to be greater than net income because sales revenue is recognized in prior periods.
(3) Inventory
Decreases in inventory cause net income to be higher than operating cash flows because sales revenue is recognized when earned but the inventory sold can be paid for in earlier periods. Increases in inventory cause operating cash flows to be less than net income because cash was used to increase inventory