I'm looking for the intuition behind this, especially since the repurchase of shares doesn't show up, and I thought the two were somewhat similar in the way they're treated in accounting ?
| +416 | Is UBS really that bad? | 76 | 40m |
| +259 | Investment Banking is Divine | 40 | 2d |
| +219 | Another $115bn Mega deal for these banks. Congrats! | 46 | 5h |
| +216 | US 2027 SA IB worried about background check | 53 | 2d |
| +54 | Useless associates | 11 | 4h |
| +48 | Differences in Restructuring Teams? | 24 | 1h |
| +40 | Is Houston SA 28 recruiting already over? | 34 | 1d |
| +36 | How do you manage nerves in IB technical interviews? | 8 | 8h |
| +34 | FIG Pigeonholes you - is it true? | 13 | 1h |
| +34 | Roku-Fox Deal - UBS Misses Out on yet another deals after years chasing this deal | 6 | 34m |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
In basic terms BOND: The company borrows money from you, they will repay it STOCK: You own part of the company, they don't owe you money
https://www.investopedia.com/terms/b/bond.asp
https://www.investopedia.com/terms/s/stock.asp
So my guess is this is what happens to income statement in debt repurchases / write downs:
a) If it's a write-down, you add it back on income statements, because it's like a "capital gain" on the investments you've made.
b) If it's a repurchase of debt/bonds: i. If it's bought back at par --> nothing on income statement changes. ii. If it's bought back cheaper than issued (e.g. issued at 100, bought back at 50) you only record the "gain" (i.e. 50) you've made on the sale on the income statement in pretax income.
Can someone confirm that's correct?
a) Not entirely sure what you mean by writedown of debt? The only concept that I think is close is DVA but that's primarily used at banks through a fair value election (i.e. not typical for companies).
b) yes - and the intuition is this: Assets = Liabilities + Equity
If you buy $100 of liabilities for $50 in cash then your equity should increase given the equation above. Accounting rules dictate that this should grow equity through the income statement and therefore you record a gain.
Rerum delectus repellat aut quis veritatis non. Libero sint ut dicta laboriosam voluptatem in dolor. Fuga sapiente autem doloremque animi et iure vero. Distinctio quis itaque nisi error vero autem enim.
Eaque et occaecati nobis cum facilis laborum. Voluptatem error perferendis est quisquam commodi. A tempore ut amet ut velit ut nostrum.
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...