A larger company likely incurs a wider variety of debts while a smaller business has fewer liabilities. In simple terms, having a liability means that you owe something to somebody else. However, there is a lot more to know about liabilities before you can say you know what the word “liability” means in corporate finance. Current liabilities are used as a key component in several short-term liquidity measures. Below are examples of metrics that management teams and investors look at when performing financial analysis of a company. If you’re using the wrong credit or debit card, it could be costing you serious money. Liabilities are categorized as current or non-current depending on their temporality. They can include a future service owed to others (short- or long-term borrowing from banks, individuals, or other entities) or a previous transaction that has created an unsettled obligation. The most common liabilities are usually the largest like accounts payable and bonds payable. Most companies will have these two line items on their balance sheet, as they are part of ongoing current and long-term operations. Like most assets, liabilities are carried at cost, not market value, and under generally accepted accounting principle (GAAP) rules can be listed in order of preference as long as […]