Summary balance sheet data for Greener Gardens Co. is shown below (in thousands of dollars). The company is in a highly seasonal business, and the data show its assets and liabilities at peak and off-peak seasons: 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. Greener Gardens' current asset financing policy calls for exactly matching asset and liability maturities. b. Greener Gardens' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt. c. Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy. d. Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy. e. Greener Gardens follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.

Corporate Financial Accounting

14th Edition

ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter14: Financial Statement Analysis

Section: Chapter Questions

Problem 14.7EX

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Question 47

Summary balance sheet data for Greener Gardens Co. is shown below (in thousands of dollars). The company is in a highly seasonal business, and the data show its assets and liabilities at peak and off-peak seasons:

	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.	Greener Gardens' current asset financing policy calls for exactly matching asset and liability maturities.
	b.	Greener Gardens' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.
	c.	Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
	d.	Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
	e.	Greener Gardens follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.

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