Current Liabilities are debts a company must pay back within one year
Current Liabilities represent the immediate, short-term debt obligations of a company. They refer specifically to debts the company must pay back within one year.
Current liabilities, which are reported on a company's balance sheet, are often compared with current assets as follows:
- Net current assets, or Working capital, is calculated by subtracting current liabilities from current assets. It is a measure of the assets the company has at its disposal in the short term to fund operations - other kinds of assets such as equipment, real estate and goodwill are less easily converted to cash.
- A company's current ratio is the ratio of current assets to current liabilities and is a measure of the company's ability to meet its near-term debt obligations - a high current ratio indicates the assets the company has at its disposal in the short term exceed the debt it must repay, and is a sign of financial strength.
