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)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 company's current asset financing policy.
E) Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.

Question

Quizplus · Accepted Answer

The fact that Swim Suits has more cash and marketable securities in the off-season suggests that they are following a relatively conservative approach to current asset financing, as they are likely using some of their permanent capital to meet short-term needs during peak season. There is no evidence in the data to suggest that Swim Suits is financing permanent assets with short-term discretionary debt (B) or exactly matching asset and liability maturities (A). Without income statement data (D) or cash flow data (E), we cannot determine other aspects of their financing policy.

Swim Suits Unlimited Is in a Highly Seasonal Business, and the Following