The Impact of Securitizations of Customer-Related Receivables on Cash Flow and Leverage: Implications for Financial Analysis
Mulford, Charles W.
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Understanding the extent to which transactions create recurring cash flow is vital to investment and credit analysis. Two measures of recurring cash— operating cash flow and its closely-related metric, free cash-flow— are of paramount importance to a firm's financial performance. In addition to cash flow, the extent to which a firm uses borrowed funds or financial leverage to finance its operations impacts its overall financial health. In this research report we look at the financial statement effects of customer receivable securitization transactions and their effects on analysis from two points of view – their impact on cash flow and financial leverage. The report includes a discussion of why companies choose to use the securitization tool, how they use it, and what goals they achieve. Our findings indicate that securitizations can have significant effects on a firm's apparent ability to generate sustainable cash flow and on its use of debt financing.