USA Total Debt and Net Debt

[Toffen]

Hi!

I was wondering if you could help me with something. I'm sitting here valuating a company, but i can't seem to understand the terms "Total Debt" and "Net Debt". My textbook states that i maybe should include "Other liabilities", "Deferred Long Term Liability Charge" and "Minority Interest" in the "Total Debt"/"Net Debt" calculation. But almost every site i have checked online says that Total Debt = LTD + STD and Net Debt = LTD + STD - Cash and Cash Equivalents.

I would be very, very happy if somebody could help me with this. I'm sort of confused. Thanks in advance

CURRENT ASSETS
[INDENT]Cash and Cash Equivalents 
Short Term Investments 
Net Receivables
Inventory
Other Current Assets
[/INDENT]

CURRENT LIABILITIES 
[INDENT]Accounts Payable
Short/Current Long Term Debt
Other Current Liabilities[/INDENT]

FIXED LIABILITIES
[INDENT]Long Term Debt
Other Liabilities
Deferred Long Term Liability Charges
Minority Interest[/INDENT]

 

[bklynboy]

Minority interest is simply the portion of a net asset you do not own (since you consolidate at 100% if you control but need to reduce equity for the portion you do not control). Does not make sense to call this debt.

Other liabilities could be anything and is generally not associated with debt since it would be highlighted in the financials if it was.

Deferred LT liabilities in my experience is usally deferred taxes or any other liability that will be settled one year or more in the future. Generally does not include debt but footnotes will say what is in here.

The reason your textbook says may include these items is because you really need to dig into the footnotes to understand what is in these balances. For instances, capital leases are considered debt for US GAAP and may be lumped in "Other Liabs" - though it should not.

I will close by saying you should also consider what off balance sheet debt exists to really understand the obligations of the company. For instance, operating leases may be non cancellable and do not show up as liabs (yet). These future payments must be made and are disclosed in the footnotes. There are also synythetic leases, securitizations, VIE's etc that should be understood. This is why Enron was so good at not showing their real exposure as much of these obligations were off balance sheet and not readily transparent.

With that, I agree net debt is LT+ST Debt - cash & cash equivs.

 

[Toffen]

Thank you! I really appreciate such a detailed answer.