Total adjusted debt
The debt figure used as the numerator of the Debt/Equity ratio: every interest-bearing liability, short or long term, plus pension deficit gaps and convertible instruments.
In plain language
Not every rupee a company owes counts the same way when judging how much debt it carries. Total adjusted debt is the workbook's specific answer to what should go into that count.
It adds up every liability that carries interest, whether due soon or years away, and folds in two items that are debt in substance even if they don't look like a bank loan: gaps in funding a company's pension obligations, and convertible instruments.
How it works
The workbook states the rule plainly: "all the interest bearing liabilities, whether short term or long term are included, gaps on pension deficits, convertibles are all considered as debt" in the numerator. Total adjusted debt is then divided by net worth to build the leverage ratio analysts use most:
D/E Ratio = Total adjusted debt ÷ Net worth
The workbook sets a rough benchmark for reading the result: on a conservative basis, a D/E of 1 or less is the line analysts watch, though the right number still depends on the industry, the company's track record and what the capital is being raised for.
A worked example
Bharti Airtel Ltd's own reported figures for FY 2019 (Rs million): secured loans 1,413; unsecured term loans 1,75,551; non-convertible bonds 2,53,741; non-convertible debentures 32,322; financial lease obligations 47,721; deferred payment obligations 4,66,191; and short-term borrowings 3,10,097 — adding up to a total adjusted debt of Rs 12,87,036 million.
Against total equity of Rs 8,49,480 million, that gives:
D/E Ratio = 12,87,036 ÷ 8,49,480 = 1.52X
At 1.52 times net worth, Bharti Airtel's FY 2019 leverage sits above the workbook's own conservative 1-times benchmark — a fact an analyst would weigh against the same company's interest coverage ratio of just 0.43x that year: a business carrying debt its operating profit could not comfortably service.
Why NISM asks about it
Chapter 8, section 8.11.3 (Leverage Ratios), builds the D/E ratio around this exact Bharti Airtel exhibit. Expect a question asking what belongs in "adjusted" debt beyond plain borrowings, or a computation using a similar list of interest-bearing liabilities.
Common exam traps
- "Adjusted" means broader than bank loans and bonds alone — pension deficit gaps and convertible instruments are pulled in too, and candidates often leave them out.
- The 1-times D/E benchmark is conservative, not a hard pass/fail rule. The workbook explicitly says the right level also depends on industry, track record and the project being funded.
- Total adjusted debt is the numerator only. A high number here still has to be read against net worth, not on its own.
Check yourself
1.An analyst is computing a company’s total debt. Which of the following is NOT one of the items the workbook sums to arrive at total debt?
- a)Current portion of long-term debt
- b)Financial lease obligations
- c)Accrued interest
- d)Trade payables
Show the answer
Answer: (d) Trade payables
The workbook defines debt by two features: "Debt are obligations that are settled through cash and involve interest that are given as compensation for time value of money. To that extent, debt is different from all other liabilities." Total debt is then "calculated by summing long term debt, current portion of long-term debt, short term debt, financial lease obligations and accrued interest."
Options A, B and C are all on the list. The current portion of long-term debt counts even though it sits under current liabilities. Lease liabilities are also treated as debt: "analysts often would consider the lease liability on balance sheet as part of Debt obligations."
Trade payables are amounts owed to suppliers of goods and services. They carry no interest, so they fail the definition. They belong in working capital. In core working capital they are subtracted from inventory and receivables.
The same idea appears in the D/E ratio. Total adjusted debt includes "all the interest bearing liabilities, whether short term or long term", plus pension deficits and convertibles.
Where this is taught
Free preparation for NISM Series XVRelated terms
- Interest coverage ratioEBIT divided by interest expense — how many times operating profit covers the interest bill. Below 1, the business is not earning enough to pay its interest.
- Net worthEverything you own minus everything you owe — the one number that says where a household actually stands, and the starting point of any financial plan.
- Financial creditorUnder the Insolvency and Bankruptcy Code, a creditor who receives consideration against the time value of money — in other words, one who earns interest on the amount outstanding.