Debt to capital ratio

CFA Level II
#1

In chapter 53 total debt to capital ratio is = (LT debt + current liabilities) / total cap. However, in the financial ratio list from the equity book equation #28, current liabilities are excluded from total debt. So which one do we use? do we include current liabilities as part of total debt or not? Thanks

#2

There are two different ratios. Long-Term Debt to Capital and Total Debt to Capital.

#3

Oh I see… but common sense would say to add current liabilities in total debt but not in LT debt… I guess I’ll have to make an effort to remember it’s the opposite. Thanks Chuck!

#4

Current liabs should be part of total debt and not LT debt, no? why not? It depends if it’s interest bearing debt or not? canadiananalyst Wrote: ------------------------------------------------------- > Oh I see… but common sense would say to add > current liabilities in total debt but not in LT > debt… I guess I’ll have to make an effort to > remember it’s the opposite. > Thanks Chuck!

#5

CL should ALWAYS be a part of Total Debt. Sorry I wasn’t assigning specific ratio names to the order of your post. LTD = LTD Only (Excludes current portion of LTD due in 365 days) TD = CL + LTD

#6

yeah thats what i thought, thanks

#7

well that’s what was confusing me. According to the formula sheet from the CFAI book, Total debt= The total of interest bearing short therm and long term debt, excluding liabilities such as accrued expenses and accounts payables. so technically, CL is excluded from TD.

#8

canadiananalyst Wrote: ------------------------------------------------------- > well that’s what was confusing me. > According to the formula sheet from the CFAI book, > > Total debt= The total of interest bearing short > therm and long term debt, excluding liabilities > such as accrued expenses and accounts payables. > > so technically, CL is excluded from TD. Yes, Total Debt to Capital ratio does not have CL. Total debt = ST debt + LT debt. ST debt could be current portion of LT debt, Notes Payables, etc.

#9

thanks canadian & Iginla. So Accounts payable and accrued liabilities are NOT part of total debt since THEY ARE NOT INTEREST BEARING