Net Debt

Question 1

Convertible Debt Should be Tested for Net Debt Calculation

Answer 1

If conversion assumed for purpose of calculating shares do not include in net debt (double counting)

Or

If conversion not assumed include in net debt

Question 1

Components of Net Debt

Answer 1

Debt and Debt Equivalents
1. Debt / Capital Leases
2. Non-controlling interests
3. Preferred Stock
Less Non-Operating Assets
1. Cash & Cash Equivalents
2. Other Non-Operating Assets

Question 2

Preferred Stock

Answer 2

Preferred stock that isn’t convertible to common should be included in net debt.

Question 3

Convertible Preferred stock Should be Tested for Net Debt Calculation

Answer 3

If conversion assumed for purpose of calculating shares, do not include in net debt (double counting)

Or

If conversion not assumed include in debt

Question 4

Non-controlling Interests (NCI)

Answer 4

The value of the business that belongs to NCIs should be included in net debt. (Use the latest book value 10k/10Q).

Question 5

NCI Expense

Answer 5

Should be excluded from the calculation of UFCF (if you start the UFCF calculation with EBIT no adjustment necessary since EBIT is before NCI expense).

Question 6

Non-Operating Assets

Answer 6

The cash flows related to non-operating assets (i.e. interest income) were not reflected in our FCF calculation.

We recognized the value of operating assets by forecasting UFCF, we haven’t recognized the value of idle cash and investments anywhere yet.

Question 7

Cash & Cash Equivilants

Answer 7

Include Marketable Securities, Current and non-current, as well as Cash.