I was wondering how do we calculate the total capital of a company? Which items should I look for in the financial statements?

And how do I calculate notes payable? Is the same as accounts payable?


I was wondering how do we calculate the total capital of a company? Which items should I look for in the financial statements?

Total capital usually refers to the sum of long-term debt and total shareholder equity; both of these items can be found on the company's balance sheet. This is one of the calculations that's traditionally used when determining a company's return on capital.

I'll use the balance sheet from Gilead Sciences' (GILD) 2012 10-K form as an example. Net long-term debt was $7,054,555,000 and total stockholder equity was $9,550,869,000 which should give a grand total of $16,605,424,000 for total capital. (I know you can do the math, but I always find an example helpful if it uses realistic numbers).

You may sometimes hear the term "total capital" referring to "total capital stock" or "total capital assets," in which case it may be referring to physical capital, i.e. assets like inventory, PP&E, etc., instead of financial capital/leverage.

And how do I calculate notes payable? Is the same as accounts payable?

As the word "payable" suggests, both are liabilities. However, I've always been taught that accounts payable are debts a business owes to its suppliers, while notes payable are debts a business owes to banks and other institutions with which it has signed a formal agreement and which use formal debt instruments, e.g. a loan contract. This definition seems to match various articles I found online.

On a balance sheet, you can usually determine notes payable by combining the short-term debt of the company with the current portion of the long-term debt. These pieces comprise the debt that is due within the fiscal year. In the balance sheet for Gilead Sciences, I would only include the $1,169,490,000 categorized as "Current portion of long-term debt and other obligations, net" term, since the other current liabilities don't look like they would involve formal debt contracts.

Since the notes payable section of GILD's balance sheet doesn't seem that diverse and therefore might not make the best example, I'll include the most recent balance sheet Monsanto as well.1 Monsanto's balance sheet lists a term called "Short-term debt, including current portion of long-term debt" with a value of $36 million. This looks like almost the exact definition of notes payable.

1. Note that this financial statement is called a Statement of Consolidated Financial Position on Monsanto's 10-K.


Total Capital

This is a very old fashioned term that really is mostly only used in the finance industry today, like when everyone was obsessed with "bank capital".

Total Capital = Preferred Equity + Common Equity + Liabilities

True blue preferred shares are almost only used by financial companies, banks specifically. The more modern ones that convert to common are used by all other companies.

Notes Payable

This is another old fashioned term that now carries a different meaning in Generally Accepted Account Principles (GAAP).

The oldest definition of a note or a promissory note is a promise to pay a fixed amount of money on a specific date.

This has been modified to resemble more a bond and evolved into the zero coupon bond, a bond that makes no cash interest payments but makes one final payment that includes principal & interest.

A bank note, like a One Dollar bill, is a note that pays something, in this case One Dollar, never (technically, the repayment date is simply not specified in the contract). While it pays One Dollar, it never pays it back, so it has a constant value of One Dollar. The constant nature, inflation notwithstanding, is what makes bank notes the preferred medium of exchange.

GAAP has taken its' own definition to mean any debt payable within 12 months, as it is a current (<12 months) liability.


Opening capital = opening assests-opening liabilities

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