Finding straight debt isn't always so straightforward. That's why the powers that be at the Securities and Exchange Commission, also known as the SEC, came up with the Annual Report. The Annual Report is full of good resources and information about a company and provides the reader with an overview of everything from asset values, sales, expenses, stockholders' equity and most importantly straight debt, which can be found on the balance sheet.
The Balance Sheet
The balance sheet is on the annual report. It is one of three financial reports required by the Securities and Exchange Commission be published in the annual report. The annual report also consists of the income statement and the cash flow statement. The income statement tells you how much the company had to pay for the debt in interest expense, and the cash flow statement tells you how much actual cash was received or paid out for the debt.
Only the balance sheet provides an overview of the different types of debt the company has. Short-term debt is the portion of debt that must be paid in the current year. Long-term debt is the portion of debt that remains after short-term debts are paid. If you're reading the annual report for 2015, the amount in current debt was paid off in the year -- the only amount you want to include as straight debt is the long-term portion.
To further differentiate straight debt, go to the notes to the balance sheet for an explanation of the types of debt the company has. For example, if the company has a revolving line of credit for $50,000 but has drawn only on $10,000, the full $50,000 is a conservative estimate of debt, since the company has used only $10,000. Bond issues and bank loans are listed with interest rates for clarity.
Some analysts include capitalized leases as part of the company's debt. A capital lease is used whenever a company is renting the use of the asset for at least 75 percent of its useful life. In this way, the renter and the owner both share in the ownership advantages of the asset. If the company has any qualified capital leases it will be listed in the notes to the balance sheet as well.
Sharon Barstow started her career in investment banking and then crossed over to the world of corporate finance as a financial analyst. She specializes in banking and corporate finance topics to include treasury management, financial analysis, financial statement analysis, corporate finance and FP&A. In addition to writing, she is the co-owner of a small dog bakery in rural Ohio.