medium · Corporate Credit Analysis fsa
A seasonally sensitive retailer expects to build 200 million in inventory and $100 million in receivables ahead of the holiday season, funded by its revolver.
If its Year-End balance sheet shows zero debt and $230 million in cash, how might a 'Net Leverage' calculation at Year-End be misleading?
- It fails to account for the LIFO reserve in inventory valuation.
- It overstates the firm's interest coverage during peak months.
- It ignores the tax-deductibility of the inventory build.
- It understates peak intra-year leverage and liquidity risk.
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