Lesson 02 — Liabilities: What the Company Owes
Week 05 · Lesson 2 of 4 · Week 05 — Reading a Balance Sheet
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Obligations due after 1 year: Longterm Borrowings — bank loans, debentures, bonds Lease Liabilities — longterm lease payments (IndAS 116) Deferred Tax Liabil...
Two types of liabilities
Non-Current Liabilities (Long-term)
Obligations due after 1 year:
- Long-term Borrowings — bank loans, debentures, bonds
- Lease Liabilities — long-term lease payments (IndAS 116)
- Deferred Tax Liabilities — tax payable in future periods
- Provisions — employee gratuity, pension obligations
Current Liabilities (Short-term)
Due within 1 year:
- Short-term Borrowings — working capital loans, overdrafts
- Trade Payables — money owed to suppliers (creditors)
- Current portion of long-term debt — loan repayments due this year
- Other Current Liabilities — accrued expenses, advance from customers
Debt: the most important liability
Total Debt = Short-term Borrowings + Long-term Borrowings + Current portion of LT debt
Distinguish debt from liabilities
All debt is a liability, but not all liabilities are debt. Trade payables are a liability (you owe suppliers) but they're interest-free — very different from a bank loan.
What to look for
| Signal | Meaning |
|---|---|
| Debt growing faster than revenue | Company may be overleveraging |
| High trade payables | Either good (supplier power) or bad (cash-strapped) |
| Large current portion of LT debt | Big repayment coming soon |
Key takeaway
Liabilities tell you how the company is funded and how much risk it carries from obligations.