An Introduction to the Balance Sheet

An Introduction to the Balance Sheet: Non-Current Liabilities

schoolbusThis article is the fifth lesson in the ModernGraham Academy beginner’s course, An Introduction the the Balance Sheet.  The ModernGraham Academy is a place to learn about the basics of investing, with an emphasis on the ModernGraham approach.

This course will be a detailed look at the balance sheet, starting with a basic overview, then a look at each part of the statement individually, and finishing up with a review and some final comments.

What are Non-Current Liabilities?

Non-Current Liabilities are the debts a company owes that are due at least one year in the future.  These are items that typically deal with long-term issues such as bond issuances, income tax deferrals, or minority interests.

Here are some of the main types of non-current liabilities, and some things to consider about each type.

  • Long-term Debt – We looked at current payments due on long-term debt when we reviewed current liabilities, but the principal portion of the long-term debt appears as a non-current liability.  This amount is not due in the immediate future, but the company must repay these funds at some point.
  • Capital Lease Obligations – When a company leases property, the overall obligation from the lease will appear here.
  • Deferred Taxes – There are differences between how a company accounts for its earnings for accounting methods and for tax methods.  As a result, sometimes the company may charge itself more taxes in the current accounting period than it actually pays to the IRS.  When this happens, the company records the additional tax that it will eventually pay to the IRS as a deferred tax.

Homework

This week, please discuss the following question with a one paragraph response in a comment to this post:  How could a large amount of long-term debt affect a company’s value to shareholders?

An Introduction to the Balance Sheet Course Overview

Photo provided by iBoy_Daniel

6 thoughts on “An Introduction to the Balance Sheet: Non-Current Liabilities

  1. Ben, how often are the academy videos updated? I see this most recent was in Nov. 2013. Just curious if you planned to continue or not.

    On a side note, GREAT website. I am young, 24, but a firm believer in buy-and-hold/value investing. To me, you really hit the nail on the head here. Too many young people my age speculate, day trade and want to make the quick buck but don’t account for lots of factors. They essentially see the market as a casino and a get rich quick scheme, only to look on in horror as they lose everything due to that same speculation. They then have a stronger urge to make that money back quicker through more speculation, day trading, etc. It is a poisonous cycle that is only getting worse and worse due to the speed of information available these days (a gift and a curse). We all need to learn to take emotions out of our decisions, think rationally and let the numbers speak for themselves. I know I have been victim of emotional investing at times, however I am lucky that I am open minded enough to learn my lesson and revert back to what the experts have to say, as they are the ones who know “Mr. Market” (as Warren says) the best.

    Also wanted to say I love the book club discussions and will be participating soon. I got halfway through the Intelligent Investor this past winter but had to set it aside when my college semester picked back up again. Breaking down each chapter weekly and having an open forum discussion is great and is a powerful learning tool for all. Hopefully more and more will see the true potential value investing possesses and see why the likes of Warren Buffett, Ben Graham, etc. have had such spectacular success over the course of time, generating wealth in a healthy and morally correct fashion.

    Keep up the great work and thanks for putting this website together!

    Jason

    1. Jason, Thanks for the comment. I’m glad you’re finding the site useful! I do not have a plan for when the academy lessons will be updated. At some point, yes, I plan to do another set of lessons, but I don’t have a time frame on those posts yet.

      I look forward to you joining us in the book club discussions!

  2. A Large amount of debt incurred by the issuance of bonds at a very low interest, like Apple did in Europe, would be good for the company. First off, a company that can issue a bond at a 1% interest rate and has people interested in purchasing them, would show shareholders that the company is considered stable and profitiable by the market. An especially innovative company could use the funds to fuel their potent R&D operations.

  3. Ben, found your website through gurufocus.com. I like your information so far and will take some tiem digest this material. I just took the Coursera.org course called ‘Intro to Financial Accounting’ taught by Prof Bushee from Wharton. I found very helpful for anyone who wants to learn the basics of accrual accounting.

    I only bring this up because you are giving a value investors viewpoint of the balance sheet (I had a feeling goodwill was overstated, what great way to balance the books without doing anything.). What is your feeling of doing a cash flow analysis when it comes to value investing?

    Look forward to the stock suggestions.

    1. James,

      I’m glad you’re enjoying the site so far!

      I don’t utilize cash flow analysis much, as Benjamin Graham didn’t teach it too much in his work, but it can be a helpful way to evaluate a company.

      Ben

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top