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Question
Ski Lifts Inc. is a highly seasonal business. The following summary balance sheet provides data for 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
$690 $620
Spontaneous liabilities $ 30 $ 10
Short-term debt 50 0
Long-term debt 300 300
Common equity 310 310
$690 $620
From this data, we may conclude that
a. Ski Lifts has a working capital financing policy of exactly matching asset and liability maturities.
b. Ski Lifts' working capital financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.
c. Ski Lifts follows a relatively conservative approach to working capital 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 working capital policy.
e. Both a and c are correct.
Answer
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