What are a company’s Liabilities?
Liabilities are debts or obligations owed by the company. Companies may take out loans, buy materials from suppliers on credit or owe taxes to the government. All of these represent a liability to a company are recorded on the company’s balance sheet.
Liabilities of a company can be found on the company’s balance sheet statement located in the 10 – K or 10 –Q filing.
Example below from Intel’s (INTC) 2012 2nd quarter earnings.
(Click to Enlarge)
Liabilities are a very broad term and are broken down into several categories on a company’s balance sheet:
Current Liabilities – Due within 1 year
Accounts Payable – Amount owed to suppliers
Long Term Debt – Debt due more than a year from now
Liabilities are used to calculate a company’s:
Leverage
Debt to Equity Ratio
Liabilities are used in many calculation to determine the financial strength of the company, mainly to ensure the company can continue to pay its bills.Some of these calculations are:
Interpretation of Financial Statements, Defines this as:
“Liabilities are recognized claims against an enterprise. In its common and narrower sense includes only creditors claims, i.e., excludes the claims of owners represented by the capital stock, surplus, and proprietorship reserve accounts..”
Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports, Defines this as:
“Liabilities are economic obligations of the enterprise, such as money that the corporation owes to lenders, suppliers, employees etc.
Liabilities are categorized in group for presentation on the balance sheet by: (1) to whom the debt is owed and (2) where the debt is payable within the year (current liabilities) or as a long-term obligation.
Shareholders equity is a very special kind of liability it represents the value of the corporation that belongs to its owners. However, this “debt” will never be repaid in the normal course of business.”
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