Why is the debt maturity mix normally simplified to short- vs. long-term debt? What, if anything, is lost in making this simplification?
This simplification is normally made to be consistent with the way assets and liabilities are categorized on the balance sheet. However, simplifying in this way hides the opportunity, and need, to consider a much finer hedging of assets and liabilities. For example, an asset that will turn to cash in one month is generally not a good hedge for ten-month debt, yet both would appear on the balance sheet as current items. An asset with a 30-year life is generally not a good hedge for thirteen-month debt, yet both would appear on the balance sheet as long-term. It is important to look beyond the simplicity of the balance sheet classification and examine the maturities of assets and liabilities in more detail.
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