What is a Debt Schedule and How to Use It?

Posted by eFinancial Models on December 9th, 2020

A debt schedule tallies all the business's financial liabilities in one sheet for easy and proper monitoring. It is utilized to understand better the business's cash flow and how it affects the three financial statements: income statement (profit & loss), cash flow statement, balance sheet). 

Components of the debt schedule include the creditors' name, opening balance, repayments, interest expense, and the ending balance. Repayments decrease the business's non-current liabilities in the balance sheet and are also recorded in the cash outflows together with the interest expense. The interest expense is deducted from the earnings of the company found in the financial statement. The ending balance is reflected in the long- debt schedule term liability figure in the balance sheet at the end of the fiscal year.

Considerations in the Preparation of Debt Schedule

There are some factors to consider in preparing an effective debt schedule and understanding it better, as discussed below.

1. Debt Maturity

Debts are usually amortized, and the payments are spread-out monthly. Lower monthly payments and longer maturity are more manageable in terms of repayments. However, the accumulated repayments are higher for the loan duration. On the other hand, shorter maturity means more significant monthly repayments but lower accumulated interest. Weigh your options and choose what's best for your company's finances.

2. Interest Rate

The interest rate determines the interest expenses that you will be paying monthly. In the same case, with the debt maturity, creditors can offer a lower interest rate for longer maturity and offer a higher interest rate for shorter loans.

3. Fixed or Floating Interest

The interest expense is more predictable and can be projected based on fixed interest since it doesn't change until the maturity date. However, floating interest depends on the changes where the floating interest is based, e.g., inflation rate, bonds rate. Floating interest would be a better option in a declining interest rate environment. 

4. Capacity to Generate Returns

One of the main reasons for acquiring debt is to finance the proposed venture or expansion. If, based on financial analysis, that the business can’t generate enough revenue for a particular project, it would be a big gamble for the company, given that this project is partly or high leverage. Acquiring loans for additional capital needs proper evaluation of business performance through financial analysis and capital budgeting. 

Using a debt schedule would make it easier to monitor the debt obligation of the company. Since it is in one spreadsheet, the business can assess the business's capability to pay the current obligations when it's due without lapses in payments. It can also help the company assess if the business can still get additional funding or apply for refinancing for a lower interest rate from a different creditor.