When adding “net borrowings” to arrive at FCFE, this is simply the change in debt correct (i.e. additional ST debt + additional LT debt)? Just wanted to be sure.
how about debt paid if any?
In 1 of the mock exams, the solution given was (change LT debt - change in NP) I still can’t figure out why they didnt add them to get the net borrowings figure … can anyone help?
STD+LTD+NP - Debt Repayment
Bilal Wrote: ------------------------------------------------------- > In 1 of the mock exams, the solution given was > (change LT debt - change in NP) > > I still can’t figure out why they didnt add them > to get the net borrowings figure … > > can anyone help? Me neither. That was the reason I asked. Are STD and notes payable not the same?
I think it’s another mistake cause net borrowings = (Change LT debt + Change N/P) not (Change LT Debt - Change N/P) but the plan im going to follow is if it was asked in the exam, ill try both ways and see what fits best cause seems to me every time it is solved in a different way…
Net borrowings = net increase in notes payable + net increase in LTD + net increase in short term debt - repayments + any new issuance of stock.
I have not seen a question which required taking care of repayments. Is that not double counting?
I am certain that debt payments have to be subtracted. However I am not sure if new issuance of preferred stock needs to be added or not?
FCFE is cash available to equity holders and issuance of equity, share repurchase and payment of didvidend has no impact on it issuance of common stock is ignored from FCFE , however issuance of preferred stock is included (preferred div treated just like debt without tax shield)
Long term and short term debt issues - LT/ST debt payments. I remember thinking that notes payable question on the mock exam was weird too.
So, if I may summarize, the Net borrowing = Add if it is an increase and subtract if it is a decrease 1. Increase (Decrease) in LT Debt + 2. Increase (Decrease) in ST Debt + 3. Increase (Decrease) in Notes Payable + 4. Increase (Decrease) in Preferred Shares. Repayment of Debt is already taken care of by the add or subtract in the above equation. New Issuance of Stock or Dividends or Repurchase of stocks etc. should not be included because of they are uses of cash available to equity holders. We are only interested in Sources of cash available for equity holders. Let me know if I have missed out anything.
so i assume the implication is that the calculation used in question 51 of the mock afternoon session is incorrect?
It is increase in LTD MINUS increase in N/P. This is because N/P will be repaid within the operating cycle so we cannot include it in cash flow available to equity.
^technically the definition is: Net Borrowing = New Debt - Repayments I did a problem where the repayments were simply the increase in notes payables and the explanation was that notes payables, since they’re current liabilities, are repaid in the current operating cycle and would be considered a repayment.
All right. after going through all the responses above, I am totally confused about how to treat the Notes Payable. Some of the responses are conflicting with others in this thread. Would some one please tell us all how to treat Notes payable while calculating Net Borrowing.
psriniva Wrote: ------------------------------------------------------- > All right. after going through all the responses > above, I am totally confused about how to treat > the Notes Payable. Some of the responses are > conflicting with others in this thread. > Would some one please tell us all how to treat > Notes payable while calculating Net Borrowing. I got it. Anyone get the schweser videos? They have two slides specifically treating Net Borrowing. Net Borrowing Adjustments 1) Long Term Debt: - ADD debt issuances to net income to arrive at FCFE - SUBTRACT debt repurchases from net income to arrive at FCFE - Net Borrowings = new debt - debt repurchases 2) Notes Payables: - Increase in notes payables, ADD to FCFE - Decrease in notes payables, SUBTRACT from FCFE 3) Current Portion of Long Term Debt - Increase in short term debt, ADD to FCFE - Decrease in short term debt, Subtract from FCFE
nielsendc Wrote: ------------------------------------------------------- > ^technically the definition is: > > Net Borrowing = New Debt - Repayments > > I did a problem where the repayments were simply > the increase in notes payables and the explanation > was that notes payables, since they’re current > liabilities, are repaid in the current operating > cycle and would be considered a repayment. I don’t understand. If Notes payable were to be always repaid within the current operating cycle, wouldn’t it always be at zero come balance sheet date?
does anyone have anything more to add/clarify on this topic? still pretty confused…
confusion is the norm in CFA material, but this post tries to clear it up pretty well. FCFE = NI + NCC - FCinv - WCinc + Net Borrowing Net borrowings = + increase in notes payable + additional long term debt + additional short term debt - preferred stock issued.