A Cash Flow Approach to Analyzing Long-term Liabilities: A Pedagogical Exercise

Document Type



cash flow; long-term liability; pedagogy; educational exercise; business; business economics; corporate finance; economics; economic disciplines; financial economics; debt management; debt service; accountancy; financial accounting; financial liabilities; labor economics; employment; occupations; educational personnel; educators; teachers; law; civil law; contract law; contracts; leases; operating leases; microeconomics; income; net income; financial documents; financial statements; business operations; commerce; financial transactions; payments; economic research; economic analysis; ratio analysis; current liabilities

Identifier Data



Financial Education Association

Publication Source

Journal of Financial Education, 41(4), 129-156


This paper presents a classroom exercise that helps students develop a mastery of analyzing long-term liabilities, including both on and off-balance sheet financing. This technique is best used as an extension to the traditional ratio-based financial analysis methods. While conceptually simple, this cash-flow based methodology provides a rich opportunity to introduce students to complex debt instruments, off-balance sheet financing, the complexities in some notes to financial statements and the relationships between valuation cash flows and debt service cash flows. The method is illustrated with a detailed example based on HCA Holdings, Inc.