Hello! My question does not concern the CFA. I hope it is still okay if I post it here.
I need to calculate the cost of debt with the yield to maturity approach for Coca Cola for a university course. I can only find very basic formulas online, but never applied to a real company. Could someone explain to me in more detail how I can calculate the cost of debt for Coca Cola with YTM?
Thank you very much in advance!
YTM = interest rate.
i found this site has a concise explanation. https://www.investopedia.com/terms/c/costofdebt.asp
More accurately, YTM = (before-tax) cost of debt.
The market tells you what your cost of debt is.
You need to have a look at the balance sheet and the notes of coca-cola’s latest financial statement. You have to go to the debt (often called borrowing) part of the notes and see what debt items they have. There are various debt categories like Term Loans, Revolving Credit, Bonds & Notes, Structured Finance, Short term borrowings like Commercial Paper, etc etc that you usually find in balance sheets of any large company. The cost of these debts are different. Many times even capital or finance lease are considered debt. Even preferred shares might be considered debt depending on their nature. The only way to arrive at the cost of debt is to calculate Weighted average cost of the entire debt of the company.
Yo can look at the current Coca Cola Co. corporate bonds outstanding via a financial data service provider (e.g. Bloomberg, CapitalIQ). There you will find the to date YTM for each bond outstanding. Take then an weighted average of the different YTM to calculate the before cost of debt.
Regards, Oscar
Thank you all very much!