Question (3) Directions: Click the Case Link above and use the information provi
ID: 2556751 • Letter: Q
Question
Question (3) Directions: Click the Case Link above and use the information provided in Hearth and Home, Parts A and B, to answer this question: What is the impact of sales growth on Hearth and Home's borrowing needs? OThe business has both long-term sales growth and a seasonal sales peak, O The business has long-term sales growth and a seasonal sales peak, both of which are potential borrowing causes O The business has no long-term sales growth and no seasonal sales peak so there is no borrowing caused by sales growth O The business has seasonal sales peaks, which are a potent al borrowing cause, but it has no iong-term sales growdh. which reduces its need to borrowExplanation / Answer
Q3 Ans B
The company has both long term sales growth from $ 2500,000 in 2011 to $3000,000 in 2012 and finally to $3070,000 in 2013 and seasonal sales peak. the increase in sales is backed by growth in inventory held and current assets in its balance sheet. the inventory and other current assets eat up the cash and require additional borrowings. the company should reduce the inventory level and other current assets by better inventory management and better recievable collection policy.