Three years of balance sheets for a very profitable furniture manufacturer at its seasonal low point of accounts receivable and inventory are as follows:

(000s)	20Y1	20Y2	20Y3
Cash	$ 42	$ 62	$ 51
Accounts receivable	28	44	135
Inventory	173	210	317
Total current assets	243	316	503
Net fixed assets	65	75	87
Patents & trademarks	6	2	7
Total non-current assets	71	77	94
Total assets	$ 314	$ 393	$ 597
Short-term debt	$ 85	$ 103	$ 197
Current portion LTD	4	4	4
Accounts payable	51	65	84
Accrued expenses	34	42	76
Other current liabilities	3	5	7
Total current liabilities	177	219	368
Long-term debt	12	8	4
Total liabilities	189	227	372
Owners equity	125	166	225
Total liabilities and equity	$ 314	$ 393	$ 597
Total liabilities to Tangible net worth	1.6	1.4	1.7

Which of the following most accurately describes the company's capital structure?

The companys leverage is fairly stable, though rising, and about half of the short-term debt should be replaced by long-term debt since the company is at its seasonal low point. The companys leverage is fairly stable, though rising slightly; but most, if not all, of the short-term debt should be replaced by long-term sources since the company is at its seasonal low point. The companys leverage has improved since 20Y1, and the distribution of short- and long-term debt is about right since it is fairly equal. The companys leverage is fluctuating and the distribution of short- and long-term debt is about right even though the company appears unable to clean up its line of credit.