Page 357 CFAI volume 2 (FRA) problem 14:
XQY reported 2007 revenue of 137M. Its AR balance beganthe year at 11M and ended at 16M. At year end, 2M of receivables had been securitized. What’s XQY cash collections from customers?
My reasoning:
- 5M is AR increase means cash outflows (not collected)
- Securitized AR of 2M means (“according to my brain”) we sold 2M of AR (cash inflows)
Net cash movement Negative 3M
A. 130
B.132
C.134
I choose C 134… I was wrong
Please explain 作者: scruge 时间: 2013-4-28 08:50
If a company securitizes AR, you’d undo the adjustment. I think the material wants us to *really* start thinking like analysts .
AR grew from 11 to 16. Net movement is -5. The company did sell a portion AR, but we, as analysts, wouldn’t really believe in that shit. So, we bring the securitized AR back on the B/S and undo the sale (aggressive revenue recognition).
Conventionally, total movement is (this is from level 1): Revenue + Beginning AR - Ending AR = 137 + 11 - 16 = 132.
Undo the AR securitization, and you have: 132 - 2 = 130.
Hope this helps.
