The debt repayment schedule can predict a liquidity crisis
An important part of reviewing a company’s cash flow
is to determine if the company has the ability to meet the future cash
demands on the organization. The annual footnotes disclose the maturity
dates of a company’s long-term debt and operating lease obligations.
The balance sheet, P&L, cash flow and footnotes,
reviewed as a cohesive picture, can predict if a company has an upcoming
The debt repayment schedule is simply the “roll out”
of mandatory debt repayment due dates. Companies need to have the
wherewithal to meet these obligations. Investors, moreover, need to ensure
themselves that a company has a clear vision (and supporting resources) of
how to pay their liabilities as they mature. Stock values can evaporate
overnight if liabilities cannot be repaid.
A quick review of the debt due date schedule can
alert investors if a company needs outside financial assistance to meet its
obligations. This is equivalent to the “smoking gun,” because money is the
hardest to come by when needed the most.