Just a quick question regarding the interpretation of ‘Market Value of Debt’ in the Enterprise Value formula… Does the Market value of debt mean we include or exclude Notes Payable??? Would greatly appreciate any feedback, cheers.
Debt means all interest-bearing liabilities.
Notes bear interest; they’re debt, so they’re included.
Thanks for taking the time to respond.
I thought the same originally but when I did the CFA Metev example and the answer ignores Notes Payable… Unless there is something strange or a trap in methodology used when calculating EV/EBITDA…
When trying to calculate value of equtiy the institute uses formula, Value of Equity = EV + Cash and Short Term Investments - Long Term Debt — formula completey ignores the presence of Notes payable as provided in the question… Very confusing indeed…
Short-term debt is the short-term portion of interest-bearing liabilities, commonly the taxable year period (1 year). The long-term portion is the remaining. Debt Notes commonly have a maturity between 5 and 7 years and they bear interest.
I don’t see your formula of EV to be accurate at all.
Check 2016 CFA L2 Curriculum, Book 4, Study Session 12, Reading 36, page 453.
4.1.1 Determining enterprise value:
EV = Market value of common equity + market value of preferred stock + market value of debt ( short + long-term ) - (cash, cash equivalents and short-term investments)
If question ignored notes payables, then there is a mistake. Have you read every footnote in the question? Maybe some facts deter from adding notes payables in that specific case.
Hope this helps.
Great, will leave it and move on. Thanks for very much for your help