I need some serious clarification on this too. I’ve seen this come up two times, i believe both in Volume 5, fixed income, in two of the EOC questions.
The first time, it asked for long-term debt to total capitalization. The answers following the questions showed (L-T Debt)/(L-T Debt + Shareholder’s Equity) Note that there was short-term debt under current liabilities in the the B/S exhibit. That seemed horribly wrong to me since total capitlization should include any interest-bearing debt + shareholder’s equity.
The second time was on pg 311 of Volume 5, question 33 in the EOC. The B/S shows current liabilities of 120, L-T debt of 855 and Shareholder’s equity of 299. The question asks for Total debt to capitalization. It calculated it by doing (current liabilities + L-T debt) / (current liabilities + L-T debt + shareholder’s equity).
This topic appears very inconsistent to me. Anybody have any ideas? My understanding of finance leads me to believe total cap should just be ALL DEBT + S/H’s Equity. The numerator should then be either ALL DEBT or just L-T Debt.