hard · Principles of Finance financial-statements-markets-wc

Holding all else equal, what is the net effect of these working-capital items on cash flow from operations versus what a naive analyst would compute by reading only the balance-sheet changes?

1. Reported CFO is $50M HIGHER than the balance-sheet-change estimate, because the factored receivables suppressed the reported AR increase that the naive analyst never sees
2. Reported CFO is $50M LOWER than the balance-sheet-change estimate, since factoring removes receivables the naive estimate would have added back as a cash source.
3. Reported CFO equals the balance-sheet-change estimate exactly, because the factoring proceeds and the receivable reduction are simply offsetting entries of matching size.
4. Reported CFO is $20M higher than last year, equal to the net of the $40M AR rise and the $30M payable rise, combined together with the $15M deferred revenue increase booked.

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