Long Term Liabilities
Liabilities are claim on a business’ assets. Liabilities are broadly categorized in current and Long Term Liabilities. This division allows us to have a more accurate vision of a business’s current liquidity position. A Long Term Liability is a debt which is not to be paid within an year of the date of the balance sheet or the business’s operating cycle, whichever is more. This means that such a liability is a non current liability.
Long Term Liabilities may include long term loans, deferred compensation, pension liabilities, derivative liabilities, debentures, bonds payable, capital leases, deferred revenues, Post retirement health-care liabilities and so on. The part of the Long Term Liabilities which will become due within the an year are shown under current liabilities in the balance sheet, for instance the EMIs paid against a long term loan.
Effect of Long Term Liability
The actual information of a business’s Long Term Liabilities is a vital component of thorough financial analysis and of accurate financial reporting. Liabilities form an essential part of the balance sheet but not all liabilities are to be shown on the balance sheet. Hence, it becomes important for the financial analyst to study carefully the notes of the business’s financial statements.
