Should we use only interest bearing obligations or total debt while calculating solvency ratios like debt to equity and debt to assets?
Towards the end of FRA in schweser they used only interest bearing but used total debt including accounts payable ,etc in the initial readings.
Thanks in advance !
Debt, properly, means interest-bearing obligations: loans payable, notes payable, bonds payable, leases payable, and so on.
If you look in the CFA reading, they’re quite clear: debt is short-term and long-term _ interest-bearing _ obligations.
Would accounts payable to be considered debt too ? If not, should the lease payment(operating lease) be considered interest bearing obligation?
Thanks for your response.
Accounts Payable typically doesn’t bear interest, so it’s not debt. Same with Wages Payable, Taxes Payable, Interest Payable and Unearned Revenue (Customer Deposits).
Leases Payable typically does bear interest, so it is debt.