Noncurrent Liabilities

Noncurrent Liabilities

Noncurrent liabilities, also called long-term liabilities or long-term debts, are long-term financial obligations listed on a company’s balance sheet. Noncurrent liabilities, also called long-term liabilities or long-term debts, are long-term financial obligations listed on a company’s balance sheet. Other variants are the long term debt to total assets ratio and the long-term debt to capitalization ratio, which divides noncurrent liabilities by the amount of capital available. Noncurrent liabilities include debentures, long-term loans, bonds payable, deferred tax liabilities, long-term lease obligations, and pension benefit obligations. While lenders are primarily concerned with short-term liquidity and the amount of current liabilities, long-term investors use noncurrent liabilities to gauge whether a company is using excessive leverage.

Noncurrent liabilities, also known as long-term liabilities, are obligations listed on the balance sheet not due for more than a year.

What Are Noncurrent Liabilities?

Noncurrent liabilities, also called long-term liabilities or long-term debts, are long-term financial obligations listed on a company’s balance sheet. These liabilities have obligations that become due beyond twelve months in the future, as opposed to current liabilities which are short-term debts with maturity dates within the following twelve month period.

Noncurrent liabilities, also known as long-term liabilities, are obligations listed on the balance sheet not due for more than a year.
Various ratios using noncurrent liabilities are used to assess a company’s leverage, such as debt-to-assets and debt-to-capital.
Examples of noncurrent liabilities include long-term loans and lease obligations, bonds payable and deferred revenue.

Understanding Noncurrent Liabilities

Noncurrent liabilities are compared to cash flow, to see if a company will be able to meet its financial obligations in the long-term. While lenders are primarily concerned with short-term liquidity and the amount of current liabilities, long-term investors use noncurrent liabilities to gauge whether a company is using excessive leverage. The more stable a company’s cash flows, the more debt it can support without increasing its default risk.

Important

While current liabilities assess liquidity, noncurrent liabilities help assess solvency.

Investors and creditors use numerous financial ratios to assess liquidity risk and leverage. The debt ratio compares a company's total debt to total assets, to provide a general idea of how leveraged it is. The lower the percentage, the less leverage a company is using and the stronger its equity position. The higher the ratio, the more financial risk a company is taking on. Other variants are the long term debt to total assets ratio and the long-term debt to capitalization ratio, which divides noncurrent liabilities by the amount of capital available.

Analysts also use coverage ratios to assess a company’s financial health, including the cash flow-to-debt and the interest coverage ratio. The cash flow-to-debt ratio determines how long it would take a company to repay its debt if it devoted all of its cash flow to debt repayment. The interest coverage ratio, which is calculated by dividing a company's earnings before interest and taxes (EBIT) by its debt interest payments for the same period, gauges whether enough income is being generated to cover interest payments. To assess short-term liquidity risk, analysts look at liquidity ratios like the current ratio, the quick ratio, and the acid test ratio.

Examples of Noncurrent Liabilities

Noncurrent liabilities include debentures, long-term loans, bonds payable, deferred tax liabilities, long-term lease obligations, and pension benefit obligations. The portion of a bond liability that will not be paid within the upcoming year is classified as a noncurrent liability. Warranties covering more than a one-year period are also recorded as noncurrent liabilities. Other examples include deferred compensation, deferred revenue, and certain health care liabilities.

Mortgages, car payments, or other loans for machinery, equipment, or land are all long-term debts, except for the payments to be made in the subsequent twelve months which are classified as the current portion of long-term debt. Debt that is due within twelve months may also be reported as a noncurrent liability if there is an intent to refinance this debt with a financial arrangement in the process to restructure the obligation to a noncurrent nature.

Related terms:

Current Liabilities & Example

Current liabilities are a company's debts or obligations that are due to be paid to creditors within one year. read more

Current Portion of Long-Term Debt (CPLTD)

The current portion of long-term debt (CPLTD) refers to the portion of long-term debt that must be paid within the next year. read more

Debt Ratio

The debt ratio is a fundamental analysis measure that looks at the extent of a company’s leverage. read more

Deferred Compensation

Deferred compensation is when part of an employee's pay is held for disbursement at a later time, usually providing a tax deferred benefit to the employee. read more

Deferred Tax Liability

A deferred tax liability is a line item on a balance sheet that indicates that taxes in a certain amount have not been paid but are due in the future. read more

Earnings Before Interest and Taxes (EBIT) & Formula

Earnings before interest and taxes is an indicator of a company's profitability and is calculated as revenue minus expenses, excluding taxes and interest. read more

Interest Coverage Ratio

The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. read more

Liability

A liability is something a person or company owes, usually a sum of money. read more

Liquidity

Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. read more

Liquidity Ratio

Liquidity ratios are a class of financial metrics used to determine a debtor's ability to pay off current debt obligations without raising external capital. read more