- Companies in United States
- Peer Analysis
Current Liabilities In A Nutshell
How might this play into your fundamental analysis you might ask, well it is simply to gauge how the company can handle short term debt and if there may be a short term cash flow issue coming. Nothing is worse than investing in a company that has to take on more debt to pay for their other debts, which causes a vicious cycle. Fundamental analysis will help you to unearth these issues and current liabilities is a great place to start.
Other line items you may want to look at in conjunction with the current liabilities is any long term debt, cash holdings, cash flow, and investments. These are all money central areas and can be liquidated and moved with relative ease. Investments may be a little more difficult because funds can be tied up in real estate or other long term holdings so understand where the company is investing excess funds.
When taking a look at companies and their fundamentals, you will usually end up on the balance sheet. Within the balance sheet, there is a section called current liabilities, what are and debts that the company must within twelve months. This line item could include any short term debts, any accrued liabilities, and accounts payable. Working capital is also derived using current liabilities, with the formula current assets minus current liabilities. There are also many different ratios out there that use current liabilities, such as the quick ratio and current ratio, which all tell us if the company can pay off their current liabilities effectively.
Closer Look at Current Liabilities
This won’t have much on an impact on anything technical as it is only a small part in the large company wheel, but it certainly could cause some short term issues that investors need to be aware of. Using ratios and other measures can help you to gauge where the company currently sits. It may be acceptable in some instances to compare them against another company, but at that level each company is unique and may be financing stuff for different reasons. So just be sure the current liabilities is not way out of range and that the company can handle them in an effective manner.