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Swim Suits Unlimited is in a highly seasonal business and the given summary balance sheet data exhibit its assets and liabilities at peak and off-peak seasons (in thousands of dollars):

Peak Off-Peak

Cash $ 50 $ 30

Marketable securities 0 20

Accounts receivable 40 20

Inventories 100 50

Net fixed assets 500 500

Total assets $690 $620

Payables and accruals $ 30 $ 10

Short-term bank debt 50 0

Long-term debt 300 300

Common equity 310 310

Total claims $690 $620

From this data we might conclude that:

a) Swim Suit's current asset financing policy calls for precisely matching asset and liability maturities.

b) Swim Suit's current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with the short-term discretionary debt.

c) Swim Suits follows a relatively conservative approach to current asset financing; that is, some of its short-term requirements are met by permanent capital.

d) Devoid of income statement data, we can't find out the aggressiveness or conservatism of the company's current asset financing policy.

e) Devoid of cash flow data, we can't find out the aggressiveness or conservatism of the company's current asset financing policy.

Business Law & Ethics, Finance

  • Category:- Business Law & Ethics
  • Reference No.:- M915782

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