2.1.3 liability

Current Liabilities

Obligations that must be settled within one year.

Examples of Current Liabilities

Trade Payables, Overdrafts, Short-Term Loans, Wages and Salaries Payable, Tax Liabilities, Accruals.

Trade Payables

Money owed to suppliers for goods or services received but not yet paid for.

Overdrafts

Short-term borrowing from a bank that needs to be repaid quickly, usually within a year.

Short-Term Loans

Loans that need to be repaid within a year.

Wages and Salaries Payable

Amounts owed to employees for work done but not yet paid.

Tax Liabilities

Taxes owed to the government, due within the short term.

Accruals

Expenses that have been incurred but not yet paid, like utility bills.

Non-Current Liabilities

Obligations that do not need to be settled within one year.

Long-Term Loans

Loans that need to be repaid over a period longer than one year.

Bonds Payable

A type of long-term debt where a business borrows funds from investors.

Mortgages

Long-term loans secured against a business’s property or land.

Leases (Non-Current)

Long-term rental agreements for assets like property, equipment, or machinery.

Current Ratio

Current Assets divided by Current Liabilities; measures ability to pay off short-term liabilities.

Quick Ratio (Acid Test Ratio)

(Current Assets - Inventory) divided by Current Liabilities; assesses liquidity excluding inventory.

Debt-to-Equity Ratio

Total Liabilities divided by Total Equity; compares a business's debt to its equity capital.

Interest Coverage Ratio

EBIT divided by Interest Expense; measures ability to cover interest expenses with earnings.

Liquidity

The ability of a business to meet short-term obligations using current assets.

Leverage

The use of debt to finance business activities.

Risk Exposure

Increased risk of default due to debt financing.

Solvency

A business's ability to cover its liabilities with its assets.

Creditworthiness

The assessment of a business's ability to secure additional financing based on its liabilities.

Cash Flow Problems

Issues that arise when a business cannot meet its short-term obligations due to high current liabilities.