Question
In: Accounting
Name a type of seasonal business that may have excess cash during the year at some...
Name a type of seasonal business
that may have excess cash during the year at some point because it
is not needed for current operations. Suggest an investment
strategy that they could use to make use of that cash when it is
not needed during the "off" season.
Solutions
Expert Solution
Answer: Seasonal business- Vacation business and snow removal services are the seasonal businesses. In the summer and winter holidays, people want to go on vacations, they want to explore new place so vacation business earns good amount during vacation time. If we talk about snow removal business, in the winters, they earn good amount. Other seasonal businesses are Halloween retailer and christmas retailer.
These businesses really earn good at the peak time but there is no season, they do not earn much. Their business is seasonal and only grows when respective season comes.
Investment strategy- Companies that are into seasonal business should invest their money so that when there is no season, they can compensate the same. Part of their earnings, they can invest into fixed income securities so that they can get a regular income whenever needed, they should invest into the funds that have lock in period because if they need money, they won't be able to take it out. Some amount they can invest into equities in different asset class, companies should diversify their investment, diversified investment strategy minimizes the risk and maximizes return.
It is said, "Do not put all your eggs in one basket". This proverb is related to the diversification strategy. Do not invest your money into a single source of investment rather diversify it into different asset class.
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