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15. Why is it not enough for an analyst to look at just the short-term and...

15. Why is it not enough for an analyst to look at just the short-term and long-term debt on a firm’s balance sheet when assessing the firm’s fixed obligations?

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The amount of liabilities shown on a firm's balance sheet is not the total obligation of a firm in any given period. To get a true picture, one needs to look at the financial footnotes that follow the financial statements. This is where you will be able to find the amount of debt repayment that the firm is responsible for in the coming years. In addition, off-balance sheet items could reflect certain future liabilities of the firm that do not have to be reported on the balance sheet. One also should look for lease obligations of the firm that are reported on the balance sheet but nevertheless remain a fixed obligation that the firm has to meet with its cash flows. Thus, it is important for the analyst to look beyond the short-term and long-term debt on the balance sheet to get a true measure of the firm's true financial commitments in any given period.

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