Total Capital is the same as Total Assets....

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MikeMilken

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This is what Schweser says in book 3. page 120

Can someone explain this to?

I thought Assets= Liabilities+Capital
 
Well, when you talk about the capitalization of a company you're talking about how they finance themselves using one of two types of capital: equity capital and debt capital.


The correct equation for a balance sheet is

Assets= Liabilities + Owners' Equity
 
Capital and Owner's equity are just the same.

When an asset is acquired/purchased, its either acquired through debt financing, hence liabilities or contributions from owners or CAPITAL. Thus any asset brought into the business is either a result of a liability or capital. But man these are basic accounting. Would suggest you read books on introduction of accounting principles.Its easier to understand than schweser i guess
 
just ignore rodney12's post.

What I said is right. He's wrong. Period.

rodney, you need to realize that terminology in the finance world is not exactly the same as terminology in the accounting world, and CFA is a finance credential (and CPAs, such as myself, don't have a monopoly on business terminology).

If you don't believe me in terms of usage of the word capital in a debt context try googling the phrase "debt capital markets"
 
Thanks for the clarification guys. Good luck with the exam.
 
The term capital is correctly defined by Super as debt and equity or liabilities and equity is a correct generalization, of course more complex issues exist including deferred taxes, pensions and off-BS debt, but in a more simplistic world that would be the ideal definition.
 
That was close. I work in debt capital markets. I thought Rodney was telling me my job doesn't exist. What a relief.
 
On the investment side we generally don't consider liabilities other than debt (and debt-like liabilities, like capital lease) as part of total capitalization. We just don't.

Capital includes total shareholder's equity, long-term debt, short-term debt, current portion of LTD, capital leases, preferred stock (w/ and w/o mandatory redemption), but not accrued liabilities, A/P, other long-term liabilties, etc.

Now, this is based on the real world definition. What you need to remember for L1, I'm not sure.
 
this site is such a wealth of misinformation!! i love it!!

total capital = long term debt (and the current portion of) + stockholder's equity

now stop smoking crack
 
All assets of the company are acquired/financed using the firms capital. This capital is acquired through debt issuance and/or equity issuance i.e share offerings...hence the statement Total assets=Total Capital(liabilities e.g bank loans, bonds issued etc +owners equity)
 
I think the problem is that the terminology has different meanings in different contexts.

When you talk about starting up and capitalizing a company you look at debt and equity to finance the long term needs of the company. At that theoretical point maybe you can say total assets equal total capital.

Once you get past that point, you get into the situations described by Dr. Feelggod and jamespucyk. You have short-term liabilites like trade payables created as part of the operating cycle, you have off-balance-sheet items which function in substance are very similar to debt and analytically may be viewed as such, etc. At that point I would say that it is wrong to claim that total assets=total capital.

But let's get down to what matters - what you most likely need to know for the exam.

You probably need to know capital structure, cost of capital, the effects of shifting between debt and equity. Know that A=L+OE, and if you're given account balances and asked to calculate total assets or fill in the blanks, make sure you know what goes into what category.
 
Dude.

It would be a mistake to think total assets = total capital.

Total capital does not equal all liabilities + all shareholders equity.

Total capital equals some liabilities, like LTD, and all shareholders equity.
 
Thanks Super for pointing that out. I guess i used accounting terms in a finance-world context.

He's right guys. Sorry for the wrong info
 
so when we calc ay ratio with total capital

shall we use total assets

or shall we use LTD debt + OE

both of them are not equal..diff is short tem liabilities
 
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