Definition:

Short-Term Debt (Excluding Lease Obligations) refers to financial obligations that a company must pay within one year. These typically include loans, lines of credit, and other forms of borrowing that are due in the short term, but do not include lease payments.

Examples:

Examples of short-term debt include bank overdrafts, short-term bank loans, commercial paper, and any portion of long-term debt that is due within the next 12 months.

Formula:

Short-Term Debt = Total Current Liabilities - Current Portion of Lease Obligations

How to use the metric:

This metric is used to assess a company's liquidity and financial health by determining its ability to meet short-term obligations. Investors and analysts often compare short-term debt to cash and cash equivalents to evaluate whether a company can cover its short-term liabilities without needing additional financing.

Limitations:

Short-term debt does not provide a complete picture of a company's financial health, as it excludes long-term obligations and lease liabilities. It may also fluctuate significantly over time, making it less reliable for long-term analysis.

Applies to:

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

Doesn't apply to:

Industries with minimal short-term borrowing, such as technology or software companies, may find this metric less relevant. Additionally, companies with significant lease obligations may need to consider other metrics that include these liabilities for a comprehensive analysis.

Summary:

Short-Term Debt (Excluding Lease Obligations) is a key metric for evaluating a company's ability to meet its immediate financial obligations. While useful for assessing liquidity, it should be considered alongside other financial metrics to gain a complete understanding of a company's financial position.