Hi all, The CFAI textbooks state something along the lines of “current interest bearing liabilities, and long-term liabilities” for the definition of Total Debt (don’t have the books in front of me) for ratios (i.e. debt:equity etc.) Does this mean that current NON-interest bearing liabilities are not included in total debt? Are ALL long term liabilities included in the calculation of long term debt? Thanks!
All long-term liabilities are included in the calculation of total debt…and if you want to get fancy, the analyst should also include stuff that isn’t actually included on the b/s as debt…PV of operating leases, account rcvbls sold with recourse, debt obligations not reported, take-or-pay contract obligations…etc etc etc. As far as the inclusion of NON interest bearing liabilities…I’m not sure, but I think so. After all, you aren’t paying an interest rate on your accounts payable, but that is still included in total debt calculations.
I don’t think there is an obligation that is non-interest bearing…I mean all the types of debt I can think of have either an explicit or implicit interest cost. If it were non-interest bearing, it would just be included as contribution capital. That said, I may be completely off.
A/P is non-interest bearing debt
I could be wrong here but… calgaryeng123 Wrote: ------------------------------------------------------- > Hi all, > > The CFAI textbooks state something along the lines > of “current interest bearing liabilities, and > long-term liabilities” for the definition of Total > Debt (don’t have the books in front of me) for > ratios (i.e. debt:equity etc.) > > Does this mean that current NON-interest bearing > liabilities are not included in total debt? Correct. Debt is related to finance which is related to interest and more specifically accounting interest. Take an example of Accounts Payable. It’s a current liability but does not bear interest. Economic interest perhaps but not accounting interest. > Are ALL long term liabilities included in the > calculation of long term debt? I’d say yes but principally because I can’t think of any long term liability that isn’t related to finance. The same interest bearing principle applies here I believe. There’s a tiny bit about this in the liabilities chapter I think. They segregate short term trade payables and short term financing liabilities. Note that no such thing is done for LT liabilities. > Thanks!
> > Are ALL long term liabilities included in the > > calculation of long term debt? > > I’d say yes but principally because I can’t think > of any long term liability that isn’t related to > finance. Would the following apply (i.e. LT obligations that don’t show up in debt): + forward purchase agreement + forward sale + pending litigation + pension, OPEB + warranty claim reserves + deferred taxes + retirement obligations
- I think it is classified as debt on the basis of take-or-pay throughput arrangement ideology. 2. I think it is classified as debt on the basis of take-or-pay throughput arrangement ideology 3. It’s contingent so nope. 4. Agreed, stand corrected 5. Not sure… 6. Bingo!Embarassed now… 7. Nope This was there in the modules…rethinking L1. Ulp! @calgary-I stand corrected on the second point…as above. Somebody on Warranty Claim Reserves?