Total Liabilities include every obligation a company owes to external parties, classified as:
Current Liabilities: Obligations due within one year (e.g., accounts payable, short‑term debt, tax payables, current deferred revenue, and other current liabilities).
Non-Current Liabilities: Obligations due after one year (e.g., long‑term debt, non‑current deferred revenue, deferred tax liabilities, and other non‑current liabilities).
Why are Total Liabilities Important?
Total Liabilities are important because they:
Indicate Financial Leverage: Show the extent of debt financing and the company’s reliance on external funds.
Assess Solvency: Help determine if a company can meet its obligations through its asset base and cash flows.
Inform Risk Analysis: Higher liabilities may increase financial risk, affecting credit ratings and borrowing costs.
How are Total Liabilities Calculated?
Total Liabilities are calculated by summing all liabilities reported on the balance sheet:
Total Liabilities = Total Current Liabilities + Total Non-Current Liabilities
Where:
Total Current Liabilities include all obligations due within 12 months.
Total Non-Current Liabilities include all obligations due beyond 12 months.
Additional Considerations
Debt-to-Equity Ratio: Comparing Total Liabilities to Total Equity helps assess the capital structure and leverage.
Maturity Profile: Reviewing the timing of liability maturities aids in liquidity planning and refinancing strategy.
Covenants and Restrictions: Many liabilities carry covenants that may restrict dividends, additional borrowing, or asset sales, affecting operational flexibility.