MASTERCLASS Investment – The Difference between Debt & Liability – Need to know what is used in a ratio

MASTERCLASS Investment – The Difference between Debt & Liability – So know what is used in a ratio

MASTERCLASS Investment – The Difference between Debt & Liability – So know what is used in a ratio

Often, investors use liability and debt when they mean the same thing. But there is a difference between Debt & Liability and one needs to know what is used in a ratio to understand it’s meaning. For example in the debt-to-equity ratio, debt means the total amount of liabilities. This means, debt includes short-term accounts such as overdrafts and credit cards and normally also includes accrued wages and utilities, income taxes due and other liabilities, plus long-term accounts and long-term loans and bonds payable. In other words, sometimes debt means all obligations… all amounts owed… all liabilities.
However, other times, the word
 debt is used more narrowly to mean only the formal, written financing contracts such as short-term loans payable, long-term loans payable and bonds payable, example – hire-purchase, equipment finance, etc. See more on Debt To Equity
As always, keep these in mind to know WHAT is being used – be clear and have it defined!

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