How to Determine the Value of Debt & Equity

Valuing debt and equity

Capital can be raised in two primary ways: debt and equity. Debt represents a form of investment which must be paid back. Investors receive a rate of interest for use of their funds. Equity, on the other hand, is ownership in the company. Equity never has to be paid back, but the owner of the stock gets to share in the future earnings of the company. For this reason, it is more expensive for a company to raise capital through debt than equity. Finding the value of debt and equity for a company is all about knowing where to look.

Things You'll Need

• Balance sheet

Instructions

1. Request the annual report from the company you would like to find the debt and equity values for. Some company websites will allow you to download the annual report directly from the investor relations area.

2. Turn to the financial statements, which are usually located in the back of the annual report. Specifically, you want the balance sheet.

3. Look for the line item "Total Liabilities." This is the value of the company's debt.

4. Look for the line item "Stockholders' Equity." This is the value of equity in the company.

References

• TemplateZone: Balance Sheet Example