Which of the following adjustments for securitized receivables on the balance sheet are appropriate for determining return on capital,free cash flow,and leverage consistently?
I.Increase short-term debt.
II.Decrease long-term debt.
III.Add back securitized receivables to the balance sheet.
IV.Treat the fees paid for securitizing receivables as interest.

Question

Quizplus · Accepted Answer

I is appropriate because increasing short-term debt will reflect the financing of the original receivables with the securitization being treated as a sale, thus adjusting for the balance sheet effect of the securitization.

II is not appropriate because decreasing long-term debt will not reflect the financing of the receivables that were securitized.

III is appropriate because adding back securitized receivables to the balance sheet will reflect the underlying assets that were securitized and adjust for the balance sheet effect of the securitization.

IV is appropriate because treating the fees paid for securitizing receivables as interest will reflect the financing cost of the securitization and adjust for the income statement effect of the securitization.

Which of the Following Adjustments for Securitized Receivables on the Balance