Equity topic test Metev

CFA Level II Equities
#1

When calculating value of equity from EV, why they do not deduct value of notes payable?

I thought equity = EV + cash&investments - value of total debt

The answer only deducts value of long-term debt, though there are 2 debt items (long-term debt and notes payable)

#2

I guess because long term debt is seen as a stakeholder position and short term debt is seen more as an expense/liability.

So when calculating equity you probably want to eliminate all other stakeholders and liquid investments.

#3

Thanks Benjamin, your explanation does make sense, yet I wonder if it’s a general rule? In the curriculum blue boxes there is an example where they add current part of long-term debt to debt for an EV calculation. But ‘notes payable’ it’s a bit vague for me to know if it is a short-term liability or current part of a long term one.

#4

I guess if it is the current part of a long term debt issuance then it would be specified as such.

Notes payable does sound pretty vague and guess the best way to think of it is like commercial paper or something of that sort.

#5

Yeah that’s short-term for sure. Thx again.

#6

Well, as a general rule I understand if we omit short term liabilities but in metev case the potential buyer clarified on paying for short term expenses too

#7

Yes I never liked this topic test, we can just hope we will not get a similar Q on the exam. I did not find anything specific in the curriculum in this respect.