3.8. Debt and Other Obligations
Lesson objective
Read the company's financing structure.
Separate short-term debt from long-term debt. Review interest rates, currency, collateral, and maturities in the notes. Other obligations may include leases, pensions, and purchase commitments.
Debt can improve returns when the business performs well, but it also magnifies losses and reduces flexibility during a crisis.
A simple review may compare debt with cash, EBITDA, or Free Cash Flow, but no ratio replaces the maturity schedule.
Debt analysis is about obligation and capacity
Net debt = Total debt − Cash and cash equivalents
Interest coverage ≈ EBIT ÷ Interest expense
Interest coverage
If EBIT is $300M and annual interest expense is $50M, coverage is about 6×. If EBIT falls to $100M while interest stays $50M, coverage falls to 2×. The debt balance did not change, but the ability to service it weakened.
Look beyond total debt
Review maturity dates, fixed vs. floating rates, secured vs. unsecured debt, leases, covenants, refinancing access, and whether cash is available where obligations must be paid.
In Finzati
Financial Strength and recent events show Total Debt and changes, but deeper review belongs in the balance sheet and official filings.
What you should remember
- Both debt amount and maturity timing matter.
- Obligations outside the line labeled Debt also count.
Practice
Create a summary containing total debt, cash, net debt, and Free Cash Flow.