Best Buy is a specialty retailer of consumer electronics, home office products, entertainment software, appliances, and related services. The following data (in millions) were taken from the 10-K filings with the Securities and Exchange Commission for the years ending February 28, income 2004, and March 2, 2003:
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2004
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2003
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Cash flow from operating activities
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$1,361
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$667
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Net income
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705
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99
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1. Compute the ratio of cash flow to net income for 2004 and 2003. Round to one decimal place.
2. In 2004, Best Buy reported a loss from discontinued operations of $95 million. In 2003, Best Buy reported a loss from discontinued operations of $441 million and a reduction of income from an accounting change of $82 million. Compute the ratio of cash flow to net income for 2004 and 2003 taking into consideration the impact of the discontinued operations and accounting change on net income. Round to one decimal place.
3. Based upon (2), is the ratio of cash flow to net income comparable between 2004 and 2003?
4. Further review of the statement of cash flows reveals that inventories increased by $282 million in 2004 over the level of change in 2003. In addition, operating liabilities increased by $588 million over the level of change in 2003. Taking into account this change in inventory and operating liabilities on cash flows and your results from (2), compute the ratio of cash flow to net income for 2004.
5. Based upon (4), is the ratio of cash flow to net income for 2004 more comparable to the ratio for 2003 computed in (2)?