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 securities0
20
Accounts receivable40
20
Inventories100
50
Net fixed assets 500
500
Total assets$690
$620
Payables and accruals$ 30
$ 10
Short-term bank debt50
0
Long-term debt300
300
Common equity 310
310
Total claims$690
$620
From this data we may conclude that
A. Greener Gardens' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.
B. Greener Gardens follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.
C. Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
D. Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
E. Greener Gardens' current asset financing policy calls for exactly matching asset and liability maturities.
Answer: B
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