The Retailing Division of Argon Clothing Inc. provided the following information on its cash flowfrom operations:Net income$675,000Increase in accounts receivable(810,000)Increase in inventory(900,000)Decrease in accounts payable(135,000)Depreciation150,000Cash flow from operating activities$1,020,000The manager of the Retailing Division provided the accompanying memo with thisreport: From: Senior Vice President, Retailing Division I am pleased to report that wehad earnings of $675,000 over the last period. This resulted in a return on investedcapital of 10%, which is near our targets for this division. I have been aggressive inbuilding the revenue volume in the division. As a result, I am happy to report that wehave increased the number of new credit card customers as a result of an aggressivemarketing campaign. In addition, we have found some excellent merchandiseopportunities. Some of our suppliers have made some of their apparel merchandiseavailable at a deep discount. We have purchased as much of these goods as possiblein order to improve profitability. I’m also happy to report that our vendor paymentproblems have improved. We are nearly caught up on our overdue payables balances.Comment on the senior vice president’s memo in light of the cash flow information.
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