Introduction
Current Liabilities are obligations that the company must pay in the next 12 months: accounts payable, short-term debt, salaries, taxes.
Explanation
Current Liabilities include: 1) Accounts Payable (money owed to suppliers), 2) Short Term Debt (debt maturing <12 months), 3) Accrued Expenses (expenses accrued such as salaries), 4) Tax Payables (taxes pending payment).
Formula
Working Capital = Current Assets - Current Liabilities
Example
Apple: - Accounts Payable: $65B (owed to suppliers like Foxconn) - Short Term Debt: $10B - Accrued Expenses: $25B - Total Current Liabilities: $100B+
How to read it
High Current Liabilities vs Current Assets = liquidity problems (Current Ratio < 1). High Accounts Payable can be positive (company negotiates good terms with suppliers) or negative (problems paying). High Short Term Debt is risky if the company does not generate enough cash to refinance or repay.
Key takeaways
- Current Liabilities = obligations <12 months
- They include: accounts payable, short-term debt, salaries
- Working Capital = Current Assets - Current Liabilities
- Liabilities > Current Assets = liquidity problems
- High Accounts Payable can be good or bad
- High Short Term Debt is risky without enough cash