There are two types of assets and liabilities, “current” and “non-current.” Current assets are those that are expected to be converted to cash in one year or less, and current liabilities are those that will come due in one year or less. So, cash, marketable securities, accounts receivable, and inventory are all considered current assets, while accounts payable and the principal amounts of loans due within a year are considered current liabilities.
Non-current assets and non-current liabilities are due or converted to cash in more than a year. Fixed assets and intangible assets are considered non-current, and loan amounts which are due in more than a year are also considered non-current.
When a credit analyst spreads a balance sheet, it is important to classify long-term debt correctly. If long-term debt is entered into the spreadsheet program, then be sure to classify the current portion of long-term debt (CPLTD) separately in the current liabilities section. The current portion of long-term debt represents the total principal amount that is due to be repaid in the next year. If the statements provided do not detail the current portion of long-term debt, then it is appropriate to calculate or estimate the amount yourself.ReplyDelete
Separating long-term debt into the current and non-current portions is important because liquidity and cash flow ratios are affected by this split.