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Question(s) / Instruction(s):

FIN 534 – Homework Chapter 16 

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

 

a. Swim Suits current asset financing policy calls for exactly matching asset and liability maturities.

 

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

 

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

 

d. Without income statement data, we cannot determine the aggressiveness or conservatism of the companys current asset financing policy.

 

e. Without cash flow data, we cannot determine the aggressiveness or conservatism of the companys current asset financing policy.

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