Final answer:
Jerry's Canoe Gallery is using positive cash flows from operations and financing activities to reinvest in the business, potentially expanding by purchasing long-term assets. The use of financing suggests borrowing or issuing equity to support these investments.
Step-by-step explanation:
The statement of cash flows for Jerry's Canoe Gallery indicates that the company is reinvesting in its operations and likely expanding its business. A negative cash flow from investing activities of $(135,000) suggests that the company is spending money on purchasing long-term assets. On the other hand, the positive cash flow from financing activities of $125,000 implies that the company is raising money, possibly through debt or issuing equity, to fund these investments. The positive cash flow from operating activities of $75,000 indicates that the company's core business operations are generating cash, which can be used for reinvestment and paying back any financial obligations.
Firms can grow by reinvesting profits into activities such as buying machines, constructing new plants, or initiating research and development projects. They can raise capital by borrowing from banks or through bonds, or by selling stock. The choice between these sources of financial capital will determine the company's control over operations and its responsibility towards its lenders or shareholders.
In the case of Jerry's Canoe Gallery, it appears that the company may be using cash from operations along with borrowed funds or raised equity to reinvest in the company's growth. This is a common strategy for businesses looking to expand and can often involve significant capital expenditure upfront in hopes of generating more profits in the future.