Components of Net Borrowing

CFA Level II Equities
#1

Hi Everyone,

I understand that Net Borrowing is the amount of debt issued less the amount of debt repaid.

On my flash cards: I had put

  1. increase in Long Term Debt

  2. increase in Note Payable.

Lately I ran into an item set were the net borrowing was equal to the increase in Long term debt less the increase in note payable. I don’t quite undertand that. If we have more note payable, we have more debt so the the net borrowing should be greater, should not it.

Could you confirm or correct me, if you see where I am wrong? thanks for your help.

#2

That doesn’t make sense. Are you sure that, for example, the change to the note payable wasn’t negative (i.e., the note was paid down)?

It would help to be able to see the vignette, question, and answer, but copying and pasting them here will likely run afoul of the copyright.

#3

Thanks for confirming my doubts.

I cannot put the detail of the question for copyright reasons. I think the answer is wrong. At least it brought my attention to the net borrowing components. I think I will remember it for long.

#4

I have always been told the following:

net borrowing = (ending short term debt + ending long term debt) - (beg short term debt + beg long term debt)

This is because short term debt is NOT included in ΔWorking Capital. Likewise, cash is not included in ΔWorking Capital.

Hope this helps.

#5

could you point us to the page/question number?

#6

section 3.4 p311 in the Equity book. I understand the book example. if you look at the exhibit 11 you will see that the net borrwing = the increase in LT debt + the increase in note payable.

My problem was with an item set, where the solution gave net borrowing as

increase in LT debt MINUS Increase in note payable.

#7

PhilMtx will you please mention item set number and page number?