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?
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.