hard · Corporate Credit Analysis fsa

A capital-goods manufacturer reports flat reported operating cash flow (CFO) year-over-year. A credit analyst notes that during the year the company began factoring its trade receivables on a non-recourse basis, selling $400M of receivables at year-end (none factored in the prior year). The receivables are derecognized and the cash collected is classified within CFO.

Holding all else equal, what is the MOST defensible adjustment to assess the true trend in operating cash generation?

  1. Reduce current-year CFO by $400M and reclassify it as a financing inflow, since non-recourse factoring is economically a secured borrowing against receivables.
  2. Reduce current-year CFO by $400M, treating the sale as a pull-forward of collections that inflated CFO relative to the non-factoring prior year.
  3. Leave CFO unchanged but add $400M to debt, because derecognized non-recourse receivables still represent a contingent claim on the seller.
  4. Increase current-year CFO by $400M, since derecognition removes the receivable asset and the cash should be recognized as a recurring operating source.

Sign up free to see the explanation and track your rank →

More Corporate Credit Analysis fsa practice

KomFi: Test Prep Made Easy

KomFi: Test Prep Made Easy — free adaptive practice for GMAT, GRE, SAT, ACT, National Real Estate Exam, Investment Banking, and finance with full explanations.

KomFi Academy is free GMAT prep and personalized GMAT help built as a training platform: 92,240+ practice questions, 30,500+ flashcards, on-demand video lectures, podcasts, and 4K slide decks. Flagship tracks: Free GMAT Prep, Free GMAT Resources, National Real Estate Exam Prep, Investment Banking Prep, Finance Prep, GRE, SAT, ACT, LSAT, MCAT, Financial Accounting, Private Equity, Private Credit, and Quantitative Finance.

Free GMAT Prep & Personalized GMAT Help

What's inside

Topics

View pricing · Read testimonials