Off balance sheet finance - CFAI SAMPLE

Analyst adjustments for throughput agreements, affect on ROA and D/E is: ROA--------Debt-to-equity ratio Increase—Increase Increase—Decrease Decrease—Increase Decrease—Decrease ROA makes sense but why does d/E increase? I just the PV of the payments are added to SHORT TERM assets and liability why does this affect long term debt? Answer is C.

and what are those throughput agreements? :slight_smile:

The throughtput agreement increase both the asset and debt. so when asset increase u got lower ROA and when debt increase you have higher d/e

Freewin3k, doesn’t it just incrase current liabilities? The PV of the commitment is added to CL. Why is long term liabilities getting hit?

I think liabilities and debt are used fairly interchangeably within the curriculum. This was a major point of confusion for me as well until I made this realization. -Stillwagon

LOL… that’s not reasuring. Anyway i’m just gonna learn it as a fact instead of trying to understand it.

A throughput agreement is an agreement to produce a specific quantity of a good in a specific period, usually at a specific location. It should have the same effects as the take-or-pay contracts have.