Debt to Equity = 1+ Debt to Capital per Bone ??????

Debt to Capital = Total Debt/Total Debt + Total Stockholder Equity

Debt to Equity = Total Debt/Total Stockholder Equity

According to Jon Bone, Debt to Equity = 1+ Debt to Capital

If I have \$5M debt and \$10M SE, Debt to Capital = 5/(5+10) = .333. Debt to Equity = 5/10 = .5.

Am I wrong or once again did he say something incorrect that Schweser failed to pick up on?

Once again? Repetitive errors?

Yes he also said Purchases = COGS - a positive change in inventory or + a negative change in inventory

The book says:

Purchases = (ending inventory - beginning inventory) + COGS

If ending inventory is higher, then its COGS + positive change

If ending inventory is lower, then its COGS - negative change

backwards.

Your first comment is correct, I don’t know if Bone also stated any information relevant to completing the problem that you are missing. But I would remember your two formulas over the one he tried to put all together.

As for inventory: BGN Inventory + Purchases = COGS +End Inventory

memorize that forumula, it’s easier to complete the question if you know this formula. Unless you are doing a cash flow statement, where it is better to know the change inventory from one period to the next.

Ok. I also just heard him say that payments to debtholders and equityholders are both after tax.

Doesn’t the income statement go:

EBIT

• interest expense

EBT

• taxes

Net Income

• preferred dividends

Net Income available to common

Interest is paid before tax is it not???

Maybe he means they are taxed in the hands of the investor.

For the company you are right, interest would come before tax.

For the investor, it may be treated as capital gains depending on if it is held in a non-tax exempt account.

yeah i mean this is getting a little ridiculous. its in FRA and he was discussing return on total capital = EBIT/average total capital…his quote:

“Now EBIT is good because it’s a pre-levered measure of return, so before any distributions to both equity and debtholders. One down side of using EBIT is that it’s also before tax, and of course, the return to both debt and equity holders are after tax payments.”

then he moves on to ROE.

I guess the good news is that I’m catching these mistakes.