Booyah Breakdown: Debt Uncovered

Editor's note: Welcome to "Booyah Breakdown," an explanation of terms and topics Jim Cramer discusses on his "Mad Money" TV show. Feel free to ask a question if you're confused about something Cramer talks about, but please keep in mind that we do not provide advice on specific stocks.

Sometimes it's actually easier to understand the idiosyncrasies of your 4-year-old then it is to understand the logic surrounding financial-statement analysis.

(Although I will forever be dumbfounded at the need to drop to the floor and scream when the right bows aren't put in your hair.)

But since reading the financials is part of the Cramer's homework assignments, we have to decipher them.

One part of homework that Cramer constantly emphasizes is the need to analyze a company's total debt liability. You need to know if the company has enough money to pay its bills. Logic tells you to go to the company's balance sheet to find the debt numbers. But since logic sometimes pulls a tantrum outside of dance class for no apparent reason (I swear), you have to be patient and dig deeper for the full story.

Believe it or not, some of your company's debt liability is tucked away in the footnotes to the financial statements that come after the cash-flow statement -- not on the balance sheet.

You can thank the Financial Accounting Standards Board for the enigma. The accounting lawmakers decided moons ago that if a company doesn't own the asset it's financing, it doesn't have to report the corresponding liability on the balance sheet.

Hmm? So if a company doesn't own the building it's leasing, it's not really an asset. Therefore it's not a real liability and it should go in the footnotes. Makes sense, right?

Hardly! It's still debt! Management still needs to make that lease payment at the end of the month.