Quick Liquidity Checks and Interest Coverage

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This episode continues the Financials Demystified series with a practical, beginner-friendly breakdown of long-term liabilities on the balance sheet. Dave and Andrew focus on what these line items actually mean, why they matter, and how to use them to understand a company’s real financial risk.

They start with operating lease liabilities, what leases represent, why context matters, and how investors can compare lease obligations to profits, revenue, and even per-store economics. Then they move into tax liabilities, explaining the difference between deferred taxes and longer-term tax obligations (often tied to uncertain tax positions).

Key Topics Covered

• Long-term liabilities basics and how they show up on the balance sheet

• Operating lease liabilities and how to think about them

• Deferred taxes vs long-term tax obligations

• Long-term debt and why “laddering” maturities matters

• Practical metrics to evaluate liabilities and debt risk

Timestamps

01:44 – Operating lease liabilities explained

04:00 – Putting lease liabilities in context with profits

10:26 – Restaurant metrics: revenue, labor costs, and food costs

13:09 – Deferred taxes and long-term tax liabilities (Microsoft example)

18:42 – Long-term debt “peel the onion” (Danaher example)

20:10 – Debt maturity schedules and why staggered maturities reduce risk

24:49 – What debt details reveal about management and capital allocation

27:33 – ROIC vs cost of capital and why the spread matters

32:49 – Key metrics: debt-to-equity and net debt to EBITDA

35:21 – Quick checks: cash vs total debt and interest coverage ratio

Resources Mentioned

The Value Spotlight Newsletter: https://einvestingforbeginners.com/value-spotlight-newsletter/

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Remember, invest with a margin of safety—emphasis on the safety. Have a great week, and we’ll talk to you next time.

Timestamps are generated by artificial intelligence, and are not 100% accurate depending on the platform used for listening.

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