·   The implication for analysis is clear: the pattern of cash flow from operations has been distorted because cash is received earlier than if the receivables had been collected when due.
·   Adjustment of the financial statements includes reducing CFO, recognizing the receivables and the current liability resulting from the collateralized borrowing on the balance sheet. Hence, the adjustment for the sale of receivables, decrease in CFO and increase in CFF, increase current assets and liabilities. The effect of the financial ratios would be a decrease in the accounts receivable turnover ratio, an increase the debt-to-equity ratio, and a reduction in the return on assets ratio.
e: Describe types of off-balance-sheet financing.
Take-or-pay and throughput arrangements: Under these contracts, the purchasing firm commits to buy a minimum quantity of an input (usually a raw material) over a specified period of time. Prices may be fixed or related to market prices. Neither the asset nor the debt related to these contracts are recognized in the balance sheet. However, the purchaser must disclose the nature and minimum required payments in footnotes. The analyst can use this information to increase the debt and decrease the debt-to-equity ratio of the firm that has such off-balance sheet debt.
Sale of receivables: A firm may sell the receivables to unrelated parties but the firm continues to service the original receivables and transfers any collections to the new owner of those receivables. Although such transactions are recorded as a sale thereby decreasing accounts receivable and increasing CFO, the buyer usually has limited exposure. Therefore, the transaction is nothing more than a collateralized borrowing. The implication for analysis is clear: the pattern of cash flow from operations has been distorted because cash is received earlier than if the receivables had been collected when due. Adjustment of the financial statements include reducing CFO, recognizing the receivables and the current liability resulting from the collateralized borrowing on the balance sheet.
f: Compute how take-or-pay contracts, throughput arrangements, and the sales of receivables affect selected financial ratios.
Sales-type lease: If the lease is a capital lease and the lessor is a dealer or seller of the leased equipment, then the lease is a sales-type on the books of the lessor. This means that the implicit interest rate is such that th