Keep an eye on the liabilities

Just like the asset side of the balance sheet is classified into current and non-current assets, the liabilities side is also classified into current liabilities and non-current liabilities of a company. If a liability is due within 12 months or within a company's regular operating cycle, it is classified as a current liability. Any other liability which does not fall under current liabilities of a company is classified as a non-current liability. A rule of thumb is that a company should have enough resources to cover all its current liabilities. Another useful principle is that while it is better for companies to have lower overall debt, long-term debt is preferable to short-term debt because of the lower obligation to make payments in the near

This article was originally published on March 31, 2022.