Total Debt vs Total Liabilites
Can you guys please help clarify one thing for me. I keep hearing conflicting ways of how to tret these liabilities.
If I add back the change in deferred taxes to my FCFF, should I treat the book value of any deferred tax liability on my B/S as part of my total debt number and subtract it from my EV to get to Equity Value?
I'm a little confused since DTL is technically not a source of capital or an interest-bearing security.
I have the same issue with unfunded pension obligations.
I have seen some analysts include these as part of total debt and some have excluded them.
Thanks for your insight.
Deferred tax liabilities are tricky because they have the chance of not materializing and might not be owed, in which case they would be rolled into equity. I usually disregard them as they have limitations on their transferability during acquisitions and for the most part are immaterial.
Underfunded pension liabilities on the other hand should be included because they are still part of operations and the company will have that liability regardless of circumstances.
Thanks for the insight.
But what about other non-interest bearing liabilities like:
What do you usuallly look for in order to determine whether or not to include these as debt for purposes of TEV and Equity Value?
Every company I value seems to have some items on its balance sheet that I have no clue how to treat.
Hope you can help me out
anyone?
Total debt and total liabilities are different things? (Originally Posted: 11/24/2014)
I tried searching on the web, but I am still a little bit confused with the concept here. Are total debt and total liabilities different things?
Total liabilities = current liabilities (including current portion of LT debt) + LT liabilities
Total debt = Account payable & accrued liabilities + current portion of LT debt + LT debt
Which one would be the correct approach? Search results I've got from googling all gave different definition.
much appreciated.
Jesus...
I'll save the snarky lecture but 1) is correct, to answer your question.
I doubt knowing the answer will really help you, though.
Yes, debt and liabilities are two different things. Debt is a form of liability, but there are liabilities that you don't think of as debt.
Not sure where you got those formulas but they are incorrect. Accounts Payable is an example of a liability that would not be counted as debt.
The way to think about it is that debt is not tied to the operations of the business. Debt is tied to how the business is financed, it's part of the capital structure. So in that sense it's a choice to have debt, you could have a business with zero debt and all equity financing.
There are many liabilities that are a part of day to day operations. For example, any kind of payable - payables to suppliers, employees, the government (taxes), etc. Having payables is just a part of running a business, it is inherent to the business activities themselves, and not the capital structure. One might have all sorts of other liabilities, for example, a liability may be established for litigation payout if the company is facing a lawsuit. These are all liabilities but not "debt."
Based on this question it sounds like you have your head in the sand. It's often best to ignore the fancy terminology for a moment and just think of yourself as a small business owner. You borrow $5000 to buy a coffee machine in addition to the $10000 you put in, that's debt. It's Thursday and John has worked the past three days and accrued $200 in wages, but you don't pay him until next week, that $200 is a liability but not debt.
I mean a practical way of thinking about is as an individual you have student loans and credit cards. Basically term debt and revolving debt. You also have rent, maybe you have something on lay away, etc. So you have liabilities in addition to the pure debt you have.
I'd probably brush up on the basics and then circle back here.
Eum eligendi recusandae ratione nihil. Id aut ea nihil et quis veniam eos.
Ad est velit id ex tempore aut magnam in. Ea suscipit voluptas aut ad quo ea. Officia quia quia quaerat similique excepturi molestiae. Sit modi dolorem eaque sit rerum cum quia pariatur. Ullam nobis et inventore est. Nihil autem quaerat molestiae libero quia. Ut provident repellendus cum libero.
Illum ipsum repudiandae dolores numquam tempore qui velit. Voluptas distinctio vel quia et totam animi repellat. Occaecati exercitationem ut sit est est et. Omnis nobis laboriosam officiis deserunt ut neque dolorem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...