Accounts receivable and firm value

On sellsidehandbook they have the following question and answer (see below). This however must be incorrect as if accounts receivable increase, we get an increase in net operating assets. It doesn't make sense that selling a product (assuming at a profit) would decrease valuation. It also contradicts BIWS guide where they say the following:

BIWS:

Inventory Increases: Inventory is an Operating Asset. No Operating Liabilities change, so Net Operating Assets (NOA) increases, and Enterprise Value increases

Who agrees?


Original question from sellsidehandbook:

Accounts receivable increases – does this affect valuation?

Yes – AR rising means a positive change in NWC, which reduces free cash flow thus reducing the valuation of the firm. These working capital changes are difficult to forecast and the question is meant to test knowledge of finance identities rather than spark a real discussion.

 
Most Helpful

It doesn't make sense that selling a product (assuming at a profit) would decrease valuation.

Here's Example of why AR/selling decreases value. If you sell items to a firm on credit(AR) and then they go out of business, you may not receive that cash. Thus a sale does not equal value. Also if you make a credit sale, and lets say your customer never pays. Well in this case there is now a cost to go collect this money and your sale did not create the full value. 

Inventory Increases: Inventory is an Operating Asset. No Operating Liabilities change, so Net Operating Assets (NOA) increases, and Enterprise Value increases

Who agrees?

If you have two warehouses and one has inventory the other doesn't.  You sell both as you get everything inside. Assuming the purchaser wants to purchase the items in the warehouse which is more valuable?  The one with stuff in it.  

 

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