7 Debt and Equity

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Last updated 10:34 AM on 7/19/26
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22 Terms

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Financing vs Operating

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Investors

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Companies

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Leverage effect

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Equity items on the balance sheet

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Which share no.

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Calculating shares

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Accounting for share transactions

Common stock is the par value * no. shares

APIC is the (issue price - par value) * no. shares

<p>Common stock is the par value * no. shares</p><p>APIC is the (issue price - par value) * no. shares</p>
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<p>Accounting for share transactions</p>

Accounting for share transactions

Treasury stock being repurchased has a negative effect on the equity

Preference shares do not affect ordinary shares outstanding

<p>Treasury stock being repurchased has a negative effect on the equity</p><p></p><p>Preference shares do not affect ordinary shares outstanding </p><p></p>
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<p>Free float shares</p>

Free float shares

excludes untraded shares, such as those restricted shared held by families and governments

small free float, little shareholder control, control resides with the family/govt, can lead to volatile share price, only a few shares for people to buy and sell in response, high premium in M&A

<p>excludes untraded shares, such as those restricted shared held by families and governments</p><p></p><p>small free float, little shareholder control, control resides with the family/govt, can lead to volatile share price, only a few shares for people to buy and sell in response, high premium in M&amp;A</p><p></p><p></p>
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Forecasting retained earnings

BASE

B beg RE

A net income

S common dividends and preference dividends ( if classed as dividends, else they are classed as interest already gone into net income)

E end RE

<p>BASE</p><p>B beg RE</p><p>A net income</p><p>S common dividends and preference dividends ( if classed as dividends, else they are classed as interest already gone into net income)</p><p>E end RE</p>
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<p>Forecasting RE</p>

Forecasting RE

pref shared treated as debt so they have interest

<p>pref shared treated as debt so they have interest</p>
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Debt products

overdraft - for individuals, short term

rcf - for a set period of time

term loans are amortising - they are paid over a period of time

bonds are repayable as bullets - at the end

term loans - covenants with them, restrictions placed on them - bonds dont have this

<p>overdraft - for individuals, short term</p><p>rcf - for a set period of time</p><p>term loans are amortising - they are paid over a period of time</p><p>bonds are repayable as bullets - at the end</p><p>term loans - covenants with them, restrictions placed on them - bonds dont have this</p><p></p>
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Debt on BS

Other liabilties tend to be OP rather than financing

<p>Other liabilties tend to be OP rather than financing</p>
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Net Debt

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Net Debt Calc

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Interest and Repayment

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How is it presented in the BS

Need to split in long term debt and current portion of long term debt (within the next year)

<p>Need to split in long term debt and current portion of long term debt (within the next year)</p>
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PIK

Interest is accrued onto the balance of the loan, no interest paid during it’s lifetime - just at the end

Interest gets larger with time due to compounding, repayment includes principal and interest

Cash up, liabilities up

Interest expense reduces net income, so RE down (equity), liabilities go up

<p>Interest is accrued onto the balance of the loan, no interest paid during it’s lifetime - just at the end</p><p></p><p>Interest gets larger with time due to compounding, repayment includes principal and interest</p><p></p><p>Cash up, liabilities up</p><p>Interest expense reduces net income, so RE down (equity), liabilities go up</p>
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PIK workout

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Leverage Ratios

D/E too much debt, leverage effect exagerates returns

Total debt / EBTDA gives idea no. years to pay of debt

Interest coverage how much we can pay interest

<p>D/E too much debt, leverage effect exagerates returns</p><p>Total debt / EBTDA gives idea no. years to pay of debt</p><p>Interest coverage how much we can pay interest</p><p></p><p></p>
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Leverage Ratio work out

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