Debt to Equity

CFA Level I Equities
#1

Please when given Debt to Equity , How do u manipulate to get Asset/Equity

#2

DEBT/EQUITY = (ASSETS - EQUITY)/EQUITY = ASSETS/EQUITY - 1 ASSETS/EQUITY + 1 =DEBT/EQUITY

EASYYYYYYY

#3

Here the accounting equation is Asset = Libilities + Shareholder equity

That means here in debt you can add back the remaining items of liability side to get the assets.

#4

thanks

#5

My pleasure

#6

Why are we assuming that debt includes all the liabilities? According to my understanding, debt includes only interest bearing liability. What am I missing? Can anyone help?

#7

You’re not missing anything.

Total debt is interest-bearing debt. It is not total liabilities; it excludes non-interest-bearing liabilities; e.g., wages payable, taxes payable, DTLs, accounts payable, and so on.

That said, frequently finance people are very sloppy in their language, and they’ll say “debt/equity” when they mean “liabilities/equity”; that’s the situation in this thread. (It’s not the people in this thread who got it wrong, necessarily; it’s the authors of the books they’re reading.)

#8

Thank you :slight_smile:

#9

You’re welcome.