debt to equity ratio i’m confused with the components of the numerator, pls help!
long-term debt + short-term debt
Debt to Equity = Total Debt / Total Shareholders Equity Total Debt = Interest bearing ST + LT Debt excluding accrued expenses and AP
I hope they explicitly state in the question which to use!
Just to clarify, which section did we see the “total debt” definition. I want to say credit analysis?
how abt deferred taxes ?
guys, i got it wrong on one schweser’s q … because they included deferred taxes on the numerator so im confused with the definition … however i ve just got the reply frm stalla support as follow: " The CFAI is currently defining the numerator of the D/E Ratio as Total Interest-Bearing Debt. Deferred taxes are not traditional interest-bearing liabilities, so they are not included in the D/E ratio. Note that it is not uncommon in practice to include deferred taxes in the D/E ratio. However, the CFAI has specifically excluded deferred taxes, so you should do so on the exam."
But there are many times when we use D/E in the context of A = D + E, as in A-E/E. In that case, D = all debts + all liabilities of all kinds?
more like A-D/D. In Reading 52: General Principles of Credit Analysis Swiffer defined it as follows Total debt to capitalization ratio = (current liabilities + long-term debt) / (current liabilities + long-term debt + minority interest + shareholders’ equity) Wouldn’t we also include preferred stock with total debt!
> Wouldn’t we also include preferred stock with total debt! I don’t think so. Where did you see that?
Just intuitively …
I hate this! I simple question like D/E can be deciphered in a dozen ways … I hate this!
------------------------------------------------------- > > Wouldn’t we also include preferred stock with > total debt! That is the key to preferred stock: it acts like debt but is classified as equity
FYI, when operating leases are adjusted on the BS to be treated as capital leases, the liability should be treated as Debt for these purposes.
^^ isn’t it the other way around? when operating leases are capitalized - that’s the adjustment the curriculum tells us to make.
i think you are both right… its when you have an operating lease you want to capitalize it… Increase PPE and increase LTD by PV of lease pmts…
There is no confusion, unless explicitly stated simply use LT+ST Interest Bearing Debt. That is the CFAI definition (look at the formula list in the beginning of the FSA book)
The best way to analyze a company’s financial leverage is to examine its: a. Debt-to-total capital ratio. b. Debt-to-equity ratio. c. CFO-to-total debt ratio.
going once, going twice…