Securation is an exchange of receivables for cash - total assets amount should not change

Hi guys,

While doing the expercises, I’ve noticied a wierd quesiton:

“Compared to holding securitized finance receivables on the balache sheets, treating them as sold had the effect of reducing Software Services’ reported financial leverage by X”.

The answer to the question says that if the receivables where on the balance sheet, total assets would grow, but the equity wouldn’t chage. Thus, the ratio would grow.

Conisdering, that securization simply exchnages receivables for cash, how the total assets amount could be impacted?

The original question is found under the reading R27 - Q17.

Thanks

Question 17 is asking what would the balance sheet look like if Software services had not securtized their receivables. So if they didn’t securitize they would borrow cash with their A/R as collateral, so Assets and Liabilities would increase by the amount of the loan, and therefore Assets grow and Equity don’t.

Oh, it makes it clear. Thanks for the note.