Thank you, Robert- that is a helpful point. I agree that total assets divided by common equity is a useful broad measure of balance-sheet leverage, and it would capture some of the effect because trade payables are still liabilities.
My concern is that many important credit and valuation metrics do not rely only on total assets/common equity. They rely on reported debt, net debt, interest expense, operating cash flow, Net Debt/EBITDA, and covenant definitions. Supplier-finance obligations may therefore be visible somewhere on the balance sheet while still distorting the specific headline metrics used by lenders, investors, rating models, and automated screens.
So I agree that total assets/common equity is a useful diagnostic. My argument is that classification still matters because economically debt-like obligations can remain outside the debt and interest categories that many users rely on.
Thank you, Robert- that is a helpful point. I agree that total assets divided by common equity is a useful broad measure of balance-sheet leverage, and it would capture some of the effect because trade payables are still liabilities.
My concern is that many important credit and valuation metrics do not rely only on total assets/common equity. They rely on reported debt, net debt, interest expense, operating cash flow, Net Debt/EBITDA, and covenant definitions. Supplier-finance obligations may therefore be visible somewhere on the balance sheet while still distorting the specific headline metrics used by lenders, investors, rating models, and automated screens.
So I agree that total assets/common equity is a useful diagnostic. My argument is that classification still matters because economically debt-like obligations can remain outside the debt and interest categories that many users rely on.