Noncurrent liabilities: Definition, ratios and types

Noncurrent liabilities, which are also called long-term liabilities, are one of the many financial data points used for financial planning and analysis.

These liabilities play a major role in assessing solvency, which measures your ability to meet long-term debt and financial commitments. Lenders and investors rely on solvency ratios to evaluate your risk and stability.

Understanding non-current liabilities

Noncurrent liabilities represent a company’s long-term financial commitments. These are debts or obligations that won’t be paid off within the next year.

These liabilities sit on the balance sheet under the long-term liabilities section—one of the core financial statements used to assess business health. They help fund large investments like property, equipment, or expansion efforts. Unlike short-term debt, noncurrent liabilities often come with structured repayment schedules and lower interest rates due to their extended terms.

Tracking these obligations is critical. They affect your debt-to-equity ratio, interest coverage ratio, and other solvency metrics that investors and lenders watch closely. Most CFOs consider managing long-term debt a top priority for maintaining financial resilience.

Financial automation software help finance teams track long-term obligations more accurately by syncing expense data directly into accounting systems. This makes sure that your solvency metrics reflect the most current financial picture.

Types of non-current liabilities

Non-current liabilities vary because businesses take on long-term obligations for different reasons, like borrowing funds, leasing assets, deferring taxes, or providing employee benefits. Each type reflects a specific financial commitment that impacts how a company manages cash flow, risk, and long-term planning.

1. Long-term loans: These are loans from banks or financial institutions with repayment terms longer than 12 months. Businesses often use them to fund major expenses like equipment, vehicles, or new locations. The monthly payments are spread out over several years, which helps manage cash flow but adds long-term debt to the balance sheet. Failing to manage these properly can strain liquidity and raise borrowing costs over time.
2. Bonds payable: When a business needs capital, it can issue bonds to investors instead of borrowing from a bank. In return, the business promises to pay periodic interest and repay the full bond amount at a future maturity date. Bonds payable are considered long-term debt and appear on the balance sheet until they’re paid off. They’re often used for large-scale projects or refinancing existing debt.
3. Lease obligations: If your business rents property, vehicles, or equipment through long-term leases, those agreements count as liabilities. Under current accounting rules (ASC 842), most leases longer than 12 months must be recorded on your balance sheet as liabilities, with the corresponding asset listed as a “right-of-use” asset. This helps give a clearer picture of future financial commitments tied to operations.
4. Deferred tax liabilities: These occur when your business pays less tax upfront due to differences between tax laws and accounting methods. For example, if you use accelerated depreciation for tax purposes, you might owe more tax in future years. Deferred tax liabilities reflect those future tax payments and help stakeholders understand timing differences between reported earnings and taxable income.
5. Pension and post-employment benefit obligations: If your company provides pension plans or post-retirement health benefits, you’re responsible for future payouts to employees. These obligations are estimated and recorded as noncurrent liabilities. The amounts depend on employee tenure, benefit formulas, and actuarial assumptions. If left unmanaged, these liabilities can grow quickly and place pressure on your financial position.
6. Contingent liabilities: Contingent liabilities are potential obligations that depend on future events, like lawsuits, product warranties, or government investigations. If the chance of a payout is likely and the amount can be reasonably estimated, it's recorded on the balance sheet. These liabilities signal risk and uncertainty, and auditors often review them closely during financial reviews.

Current liabilities vs. non-current liabilities

Current liabilities are the bills that need to get paid right away or within a few months. Obligations to vendors, suppliers, and payroll fall into this category. Non-current liabilities are the bills you can put off until later. This can increase working capital and short-term liquidity, but it can have a long-term impact on your business.

Let’s use the example of the short-term loan that we mentioned above. It’s due within twelve months, so it’s a current liability. Paying it off within that time frame with your liquid assets reduces the short-term liquidity of your company and lowers your profit margins. Refinancing takes it off the books for this year, increasing your profitability. Is that a good thing?

In this case, extending that loan through refinancing could be costly. Interest payments are current liabilities. Refinancing might lower monthly payments, but interest will still accumulate on the unpaid principal. As companies grow and it becomes necessary to take on more debt, interest payments on each of those “extended” loans increase current liabilities

Leases are another area to examine here. A twelve-month lease is a current liability, while a three-year lease is noncurrent. Payments during the year count towards CPLTD, but the lease itself creates a long-term obligation that affects the company's solvency ratio. That’s why companies preparing for acquisition terminate their long-term leases.

These are just two examples of how accountants need to look at current and noncurrent liabilities. In the next section, we’ll review how noncurrent liabilities are used to measure the financial health of a business and why they’re important to accountants.

Ramp simplifies this by giving accountants real-time visibility into spend, automating transaction coding, and flagging exceptions so liabilities are recorded correctly every time.

Business ratios for measuring liquidity and solvency

Noncurrent liabilities are a line item on the balance sheet, so accountants need to know how to recognize them. The numbers need to be accurate because they will be used for certain business ratios that measure the liquidity and solvency of a company. Liquidity is a metric for working capital. Solvency is a company’s ability to pay its debts.

New business owners tend to put too much emphasis on the metrics that measure a company’s ability to pay its short-term liabilities. The business ratios for that are the “Quick Ratio” (Current Assets – Inventory ÷ Current Liabilities) and the “Current Ratio” (Current Assets ÷ Current Liabilities). The quick ratio does not include non-liquid assets.

The quick ratio and the current ratio don’t account for noncurrent liabilities, so they can be deceiving. Companies can have the liquidity to pay short-term debts but still fall short of meeting their long-term financial obligations. Thankfully, with an accurate balance sheet, there are solvency ratios for determining the long-term health of the business.

• The fixed assets to long-term liabilities ratio: Dividing the total amount of fixed assets by the total amount of long-term financial obligations (Fixed Assets ÷ Noncurrent Liabilities) provides a number that is used by most lenders when assessing business creditworthiness. The higher the number, the healthier the company. That’s an argument for paying off debt as quickly as possible, as opposed to refinancing it.
• The interest coverage ratio: We mentioned this ratio briefly when we spoke about types of noncurrent liabilities. The interest coverage ratio is calculated by dividing your EBITDA (earnings before interest, taxes, depreciation, and amortization) by your interest expense (EBITDA ÷ Interest Expense). If the resulting number is low, your company may be over-leveraged.
• The total debt ratio: The total debt ratio is the simplest of the three solvency metrics and can be used for a macro view of whether the company can pay its bills. The formula is (Total Debt ÷ Total Assets). That incorporates all current and noncurrent liabilities along with liquid and non liquid assets, including unsold inventory. It’s a quick calculation, but it doesn’t tell the whole story.

How non-current liabilities affect business value

Using a quick ratio to see if you have enough cash flow to cover an expense reimbursement or two is a basic accounting exercise. Creating a balance sheet that can be used to calculate solvency ratios impacts the company's future. Lenders, investors, and shareholders employ those ratios to make financial decisions that affect owners and employees.

An accountant must understand noncurrent liabilities and how changes in them can affect business ratios. Knowing when to convert current liabilities into long-term liabilities is part of that. Accurately recording the current portion of long-term debt in the proper place is another.

Noncurrent liabilities are important in accounting because they’re a category on the balance sheet, a document that transparently tells the world how well a business is doing. Getting this calculation right ensures that you're representing your business's finances most accurately.

Strengthen financial strategy with smarter liability management

Noncurrent liabilities do more than sit on a balance sheet. They also shape how lenders, investors, and internal teams assess your business’s financial health. Managing them effectively helps improve solvency ratios, control debt levels, and support long-term growth.

Accurate tracking of long-term loans, lease obligations, and deferred taxes gives you clearer visibility into your future cash commitments. With nearly 60% of business failures tied to financial mismanagement, knowing exactly what your business owes—and when—is a key part of avoiding risk.

Smart liability management isn’t just about reducing debt. It’s about structuring it in ways that support your operations, maintain liquidity, and improve your borrowing power. Focus on solvency metrics like the interest coverage ratio and total debt ratio to make more informed decisions before taking on new obligations.

Ramp also helps teams close the books faster, reduce manual errors, and maintain consistency across complex financial structures. That means fewer surprises, better forecasting, and more time spent on strategy instead of cleanup.