Query regarding buy back

While checking if debt equity ratio is 2:1 after buy-back do we include current liabilities as well? In the suggested answer https://220.227.161.86/27518suggans_ipcc_may12-5.pdf (Q3a) current liabilities of Rs. 16,50,000 have been added in the numerator. Could anyone clarify this? TIA
Replies (4)

Extract from FM Book by Khan & Jain
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Sir I didn't understand

I think confusion is arising because in debt to equity ratio sometimes long term debt is used instead of total liabilities as a numerator.
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But generally, current liabilities should be included because
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1) Current liabilities also form the part of debt and one of a factor determining the risk taking appetite of a firm.
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2) Major component of current liability is short term bank loan, which also carries interest cost with it.
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3) Short term creditors restrict the management activities as they have to be paid on time.
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Hence without including this, we may not be able to assess the correct solvency position.

Ok. Thanks a lot Sir for clarifying the doubt.

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