Thursday, August 02, 2007

Factoring/ARP

Today, I came across an interesting issue on factoring. Here it goes:

Q: How can Factoring/ARP improve my Return on Asset Ratio (ROA)?

A: When you factor your accounts receivable to us, we remove them from your books, thereby reducing your total assets and consequently improve your ROA.


Kind of ironic to think of it tt way, isn’t it? Shouldn’t the aim be to increase return instead of decreasing assets? Although according to the formula, it would be accurate to generate a better ratio.