Current Liabilities

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Definition of 'Current Liabilities'

Current liabilities are debts and obligations that a company must pay within one year. They include accounts payable, accrued expenses, short-term debt, and unearned revenue. Current liabilities are important to investors because they can indicate a company's ability to meet its short-term financial obligations.

Accounts payable are amounts owed to suppliers for products or services purchased on credit. Accrued expenses are expenses that have been incurred but not yet paid, such as wages, taxes, and interest. Short-term debt is debt that must be repaid within one year, such as loans from banks or bonds. Unearned revenue is revenue that has been received but not yet earned, such as for services that have not yet been performed.

Current liabilities are a part of a company's working capital, which is the amount of money a company has available to fund its day-to-day operations. Working capital is calculated by subtracting current liabilities from current assets. A company with a positive working capital has enough money to pay its short-term debts and still have enough money to operate. A company with a negative working capital is in danger of defaulting on its debts.

Current liabilities can be a sign of financial distress if they are too high relative to a company's assets or if they are growing too quickly. However, current liabilities are not always a bad thing. For example, a company that is growing rapidly may have high current liabilities because it is investing in new products or services. In this case, the current liabilities are a sign of the company's growth potential.

Overall, current liabilities are an important part of a company's financial health. They can be a sign of financial distress, but they can also be a sign of growth. Investors should carefully analyze a company's current liabilities to get a better understanding of its financial health.

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