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Hi,
Do I have to include reserves in debt gearing and WAAC calculation? I’ve got confused of all the examples.
Thanks!
If you are using market values for equity and debt for calculating the gearing and for calculating the WACC (as usually we always do), then reserves are not relevant.
(The most obvious reason for the market value of equity being more than the nominal value is because of the reserves – they are effectively already included).If you are calculating gearing and WACC based on the values in the Statement of financial position) – which you only do if specifically told to – then the value of equity is the share capital + reserves.
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Thank you so much! I see now 🙂
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