Reference no: EM132613230

Seasonality on a firm's financials

It is common to use annual reports when analyzing a firm's financials. The annual Income Statement represents the previous 12 months of activity, and the Balance Sheet reflects financial values at the fiscal year-end. Annual Income Statements and Balance Sheets provide a reasonable starting point to analyze a firm. In addition, they are sufficient if the firm's sales, as well as assets and liabilities, are fairly constant throughout the year. However, many firms have large variations in their sales, assets, and liabilities during the year due to seasonality. For example, the Christmas gift season is typically the largest for retailers, and thus sales are higher during this period while inventory levels are largest just prior and lowest just after.  These, of course, have a cascading impact on receivables, payables, bank loans, and so on.

Required

Discuss the impact of seasonality on a firm's funding with reference to the case above.