I will feel dumb if I am wrong but if I am right, I may have to troll. Balance Sheet whizzes: Please chime in!
Isn’t this the debt interest + interest income netted together.
I had an interview with a large company today and their definition is different than mine and apparently several others after a google search that agreed with me. If no one else chimes in by tomorrow i’ll elaborate
What about principal? Since debt = principal + interest. I also noticed in some textbooks that they subtracted cash position from overall debt to obtain net debt.
Anyway, I believe this sort of question is quite debatable.
Net debt = Financial liabilities (both ST and LT) + Debt-like items - Cash.
It is a pretty common deals term, as it is used to calculate the consideration of a deal (since most deals are on a cash-free/debt free basis).
So you would include accounts payable in that “Debt-like items” correct?
"(Short term debt + Long term debt) - Cash and cash equivalents " is the basic formula for Net debt. Short term debt includes Accounts payable in it. I very often go through financial statements of private equity funds. When they give detail review of their positions in some investments one of the metrics the provide and follow besides sales,EBITDA,net income,etc. is “net debt” and so far from what I have seen it is calculated as I mentioned above.Anyway someone more accounting oriented may know better.
Definitely not, they are part of Net Working Capital. Debt-like items would be items such as provisions for one-off events, etc.
net debt = any new debt taken on, minus any debt retired by the firm- all of this being interest bearing (LT), as short-term debt is part of working capital liabilities.
Pretty sure this is how CFAI taught it anyways. Anyone else?
I’m looking at my textbook, Valuation for Mergers, Buyouts, and Restructuring by Enrique Arzac, the definition here states " net debt was defined by interest-bearing liabilities minus cash and marketable securities" (pg. 9). This means a/p would not be included since it’s not normally interest-bearing.
So basically, I am hearing two differing opinions. All the research I have done also has conflicting opinions. According to the corporate finance institute, AP is included in net debt calculations, but according to other sources like Investopedia, it says it’s not included.
Anyway, it was on a practice test question for this consulting site called Toptal which supposedly only takes the top 3% of people who apply. They did not include AP in their net debt calculation and I told their content review team I think this is subjective based on the research I did. Thanks for the input all!
Net debt = Short term debt + long term debt - cash. never include payables. good luck with your interview.
In the context of valuation, short term interest bearing debts are part of the net debt, and they are excluded from WCInv calculations.
WCInv calculation for FCFF/FCFE in CFAI provided material explicitly states it excludes cash & equivalents, short-term interest bearing debt, notes payable, current portion of long-term debt, and dividend payable.
Thanks bud! I am in the testing phase now and will take a 20 questions multiple choice test tomorrow. 45 mins long. (Just what I need, more tests after level II hah). I have read mixed reviews about Toptal so I am not expecting much but we will see.
Good luck man. Go and nail the interview. Always here to help if needed.