Swim Suits Unlimited is in a highly seasonal business, and the following summary
ID: 2673053 • Letter: S
Question
Swim Suits Unlimited is in a highly seasonal business, and the following summary balance sheet data show 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 may conclude that
Answer
Swim Suits' current asset financing policy calls for exactly matching asset and liability maturities.
Swim Suits' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.
Swim Suits follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.
Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
Explanation / Answer
Swim Suits Unlimited is in a highly seasonal business, and the following summary balance sheet data show 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 may conclude that
Answer
Swim Suits' current asset financing policy calls for exactly matching asset and liability maturities.
Swim Suits' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.
Swim Suits follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital. correct answer
Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.