Hi all
Can I ask you guys :
what is is the definition of Capital? Is it Total debt + Owner’s Equity? Does this total debt include Accounts payable?
I had this question when I was attempting the Challenging Problems #59 from Schweser.
When calculating the debt/capital ratio, the debt figure excluded accounts payable while the capital figure included accounts payable.
Can someone explain this to me?
Thanks alot!
Total Debt : Long-term debt + interest-bearing short-term debt
In general, all interest-bearing debt. Not accounts payable, wages payable, taxes payable, and so on. And not lease obligations.
Not everybody agrees on this definition, but it’s what CFA Institute uses.
Total Capital : Total debt (see above) + shareholders’ equity
Total debt is including all items of liability side only excluding equity and non interest bearing debt.
Not according to CFA Institute. Non-interest bearing liabilities (e.g., accounts payable, wages payable) are not included in total debt.
That’s false. That’s total liabilities, not total debt.
not so pristine
Now it is clear that total debt not including non- interest bearing debt, Mistake has been corrected.
100% s2000magician