Introduction Optional Reading Workshop Content - Bivio
Introduction Optional Reading Workshop Content - Bivio
Introduction Optional Reading Workshop Content - Bivio
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substitute Total Assets = Total Liabilities + Equity(E)to obtainFL = Total Liabilities/E + E/E = Total Liabilities/E + 1 = 1 + (Total Liabilities/E)Next expand Total Liabilities (look at the Morningstar data table for guidance).Total Liabilities = Current Liabilities + Long Term Debt(D) + Other Long Term Liab.Divide by E and rearrange terrms.Total Liabilities/E = D/E + (Current Liabilities/E + Other Long Term Liab./E)The final substitution produces:FL = (1 + D/E) + Current Liabilities/E + Other Long Term Liab./ETherefore; FL > (1+ D/E)How much greater depends on the two additional terms. They vary for differentcompanies. They may also vary over time for the same company as can be seen bylooking at the data for BUD.
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