Definition:

Change in Current Debt refers to the variation in the amount of short-term debt a company holds over a specific period. This metric indicates how much a company's short-term borrowing has increased or decreased.

Examples

1. If a company had $100,000 in short-term debt at the end of 2022 and $150,000 at the end of 2023, the Change in Current Debt is $50,000.
2. A company reduces its short-term debt from $200,000 to $180,000 over a quarter, resulting in a Change in Current Debt of -$20,000.

Formula:

Change in Current Debt = Current Debt at End of Period - Current Debt at Beginning of Period

How to use the metric:

This metric is used to assess a company's liquidity and financial strategy. An increase in current debt might indicate a need for additional working capital, while a decrease could suggest improved cash flow or repayment of obligations.

Limitations:

Change in Current Debt does not provide insights into the reasons behind the change, such as whether it was due to operational needs, strategic investments, or financial distress. It also doesn't account for the terms of the debt or the company's ability to service it.

Applies to:

This metric is applicable across most industries, particularly those with significant short-term financing needs, such as retail, manufacturing, and services.

Doesn't apply to:

Industries with minimal reliance on short-term debt, such as technology firms with substantial cash reserves, may find this metric less relevant. Additionally, it may not apply well to non-profit organizations that do not engage in traditional borrowing.

Summary:

Change in Current Debt is a financial metric that tracks the increase or decrease in a company's short-term debt over a period. It provides insights into a company's liquidity management and financial strategy but lacks context regarding the reasons for the change. It is broadly applicable across industries with notable short-term financing activities.