Versions of Debt to Capital Ratio

CFA Level II Fixed Income
#1

Below are two separate questions from the Fixed Income section. Both involve some form of the Debt/Capial Ratio Ratio. The treatment of this ratio seems inconsistent, in the first question “capitalization” takes into account all assets, in the second question it does not. Also in regards to the first question, I am never sure of when “liabilities” are considered debt. If there is an accounts payable amount, is this debt? How do we know whether current liabilities in the first part considers A/P and does this matter.

Total Assets = 1,269

Current Liabilities 120

Long Term Debt 850

Shareholders Equity 299

Question: What is the total debt to capitalization ratio?

Answer: (850 +120)/1269 = 76.4%

Total Assets 10,618

Total Debt 1,613

Shareholders equity 4,616

Question: What is the debt/capital ratio?

Answer: 1613/(1613+4616) = 25.9%

#2

Anyone? Especially stumped by how in the first question we know whether to include current liabilities as part of total capitalization.

#3

Its just schweser being retarded. Qbank is littered with these errors.

RE first question:

CPLTD is the only current liability that should be considered debt. Dont use all current liabilities.

RE second question:

The answer they gave is correct. The equation is correctly stated as D/(D+E)

#4

It’d say that total capital = ST and LT Debt (only interes bearing) + equity.

#5

No it is straight from the horse’s as…mouth, Reading 44 #33

#6

yes I asked this question separately in another topic, what is total capital.

http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91321365