D/E Ratio & Yields

[mrb102189]

Does change in current market yields affect a company’s D/E? My understanding is it woulnd’t because Debt is measured using amortized cost and equity is on the BS as paid in cap + ended retained…I thought I came across a practice problem that said it was affected by a chnage in yields- am I mistaken? What does affect D/E other than issue more debt or equity (obvious)…what about a buy back is the change in the amount of debt & EQ the exact same so the larger % change would prevail?
Thanks,

 

[S2000magician]

I believe that IFRS allows you to show debt at market value; if you did so, then the D/E ratio could change as market yields change.
I don’t recall off the top of my head if US GAAP allows that treatment, but I’d suspect not; they tend to incline toward historical cost, not fair market value.

 

[mrb102189]

That makes sense- maybe the questiion that I was recalling mentioned it was an IFRS firm that uses MV for debt and I just didn’t make the connection…thnx

 

[S2000magician]

My pleasure.