Question

explain why a "seasonal" company will have different levels of current assets at different times of the year

Answer 1

Introduction :

A seasonal business is one in which the majority of its sales occurs during a short period each year, or a business that experiences substantial changes in trading activity throughout the year

Examples :Toy, Tourism, and Farming industries.

Companies that own seasonal businesses must manage the effects of seasonality on its working capital and on current asset

Reasons :seasonal" company will have different levels of current assets at different times of the year:-

1.During the season the volume of business will be high,hence working capital requirement will also high.

2.company will face higher costs, such as production and marketing costs, during this time

3.The company maintain higher levels of inventory in its balance sheet during the high season to meet its production requirement and sales demands.Average inventory will generally be higher during the peak season.

4.The company have greater account receivables during the peak season.

5.The company will likely rely on more financing from suppliers(credit purchases) to support funding for its operating activities