How to Determine the Market Price of Debt

Written by brett bivens
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How to Determine the Market Price of Debt
Raising capital may lead to a company building new headquarters. (Thomas Northcut/Photodisc/Getty Images)

Market price of debt, also known as market value of debt, is necessary to determine a company's weighted average cost of capital (WACC). WACC dictates how much it will cost a company to raise new capital. The ability to raise capital is integral to a company's growth and long-term viability. The market value of debt is the sum of a company's book debt, such as bank loans, and the amount of debt held in publicly traded bonds. In general, it is less difficult to find the value of a company's debt held in publicly traded bonds.

Skill level:
Moderate

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Instructions

  1. 1

    Calculate the value of book debt. Book debt includes the value of the company's loans from various sources, including banks. It also can include short-term obligations such as money owed for capital expenditures, including equipment and land. If you have access to the company's financial records, add all of the company's debt from the liabilities section on the balance sheet to find the total value of the debt.

    If you do not have access to the company's financial records, use the value of its publicly traded bond debt as an estimate. Although this number provides a good estimate, it is not as precise.

  2. 2

    Calculate the value of debt held in publicly traded bonds. This is the total value of the company's bonds held by investors. Because this information is public, it is in the company's financial statements or in reports from independent ratings agencies such as Standard and Poor, and Moody's. Financial statements are available on the company's website or on SEC.gov.

  3. 3

    Add book debt and debt held in publicly traded bonds to estimate the market value of the company's debt.

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