Current Port. of LT Debt/Capital Leases is Long Term Debt due within a year. The value of Current Port. of LT Debt/Capital Leases should be much less than Cash & Equivalents. To determine the company's financial health, add Current Port. of LT Debt/Capital Leases to Notes Payable/Short Term Debt and check if it is less than Cash and Short Term Investments.
A company that has lots of cash and very little or no debt will easily survive a recession. If the company has a Durable Competitive Advantage, too much Long Term Debt due will scare investors and drive the company's stock price lower making it a potential take over. But, if the company does not have a Durable Competitive Advantage, too much Long Term Debt that is due can drive that company into bankruptcy.
Equations
Check if Current Port. of LT Debt is much less than Cash & Equivalents:
Check the company's financial health:
Check if the company will survive a recession:
If the company's financial health is not good, meaning the company has more debt due than cash, these are the potential outcomes:
| Does the company have a Durable Competitive Advantage? | Potential Outcome |
| Yes | Take Over Target |
| No | Bankruptcy |