Non-current liabilities: Definition, ratios, and types
- What are non-current liabilities?
- Types of non-current liabilities
- How non-current liabilities appear on the balance sheet
- Financial ratios for analyzing non-current liabilities
- Why non-current liabilities matter for business health
- Common challenges in managing non-current liabilities
- 4 best practices for non-current liability management
- Manage noncurrent liabilities with automated tracking and real-time visibility
Non-current liabilities are long-term financial obligations your business doesn’t need to settle within the next 12 months. They include items like long-term loans, lease obligations, and deferred taxes that help finance growth without putting immediate pressure on cash flow.
Understanding how non-current liabilities work is key to evaluating your company’s balance sheet, managing debt responsibly, and assessing long-term financial health from the perspective of lenders and investors.
What are non-current liabilities?
Non-current liabilities are financial obligations that aren’t due within the next 12 months from the balance sheet date. They represent long-term commitments a business takes on to finance assets, operations, or growth over multiple years.
These obligations appear on the balance sheet below current liabilities. The key distinction is timing: current liabilities must be paid within the next year, while non-current liabilities are settled over a longer horizon, allowing businesses to spread costs across future periods.
Non-current vs. current liabilities
Understanding the difference between current and non-current liabilities helps you evaluate both short-term liquidity and long-term solvency. While current liabilities affect near-term cash needs, non-current liabilities shape how a business finances itself over time.
| Feature | Current liabilities | Non-current liabilities |
|---|---|---|
| Payment timeline | Due within 12 months | Due after 12 months |
| Balance sheet placement | Listed first under liabilities | Listed after current liabilities |
| Cash flow impact | Immediate effect on working capital | Spread across future periods |
| Common examples | Accounts payable, wages, short-term loans | Long-term loans, bonds, long-term leases |
The current portion of long-term debt
Long-term obligations don’t stay non-current indefinitely. Any portion of a long-term liability that comes due within the next 12 months must be reclassified as a current liability on the balance sheet.
For example, if you have a 5-year loan with annual payments, the amount due in the next year is reported as the current portion of long-term debt. The remaining balance continues to be reported as a non-current liability, ensuring your financial statements accurately reflect upcoming cash requirements.
Types of non-current liabilities
Businesses rely on several types of non-current liabilities to fund long-term activities and manage capital efficiently. Each type reflects a different financing decision, with its own accounting treatment and impact on the balance sheet.
| Type | Description | Common use case |
|---|---|---|
| Long-term loans | Debt borrowed from a bank or lender with repayment terms longer than 12 months. These loans may be secured by collateral or unsecured. | Financing major purchases like equipment, vehicles, or real estate through multi-year loan agreements |
| Bonds payable | Debt securities issued to investors, typically used to raise large amounts of capital at fixed interest rates. | A mature company issuing bonds to fund expansion without giving up equity |
| Long-term lease obligations | Lease liabilities recognized for agreements longer than 12 months under current accounting standards. | A business signing a multi-year office or vehicle lease and recording the present value of future payments |
| Deferred tax liabilities | Future tax payments created by timing differences between financial accounting and tax reporting. | Using accelerated depreciation for tax purposes while reporting straight-line depreciation in financial statements |
| Pension obligations | The present value of retirement benefits promised to employees under defined benefit pension plans. | An established company funding long-term retirement commitments to current and former employees |
Other non-current liabilities may include warranty provisions for products with long-term coverage, asset retirement obligations for future cleanup or decommissioning costs, and certain contingent liabilities that are expected to be settled beyond one year.
How non-current liabilities appear on the balance sheet
Non-current liabilities are listed on the balance sheet after current liabilities and before shareholders’ equity. This ordering reflects when obligations are expected to be paid, with short-term debts listed first and long-term obligations grouped separately.
Below is a simplified example showing how non-current liabilities typically appear on a balance sheet:
| Assets | Liabilities and equity | ||
|---|---|---|---|
| Current assets | $500,000 | Current liabilities | $200,000 |
| Fixed assets | $1,500,000 | Non-current liabilities | |
| Long-term debt | $600,000 | ||
| Lease obligations | $150,000 | ||
| Total non-current liabilities | $750,000 | ||
| Shareholders’ equity | $1,050,000 | ||
| Total assets | $2,000,000 | Total liabilities and equity | $2,000,000 |
Balance sheet presentation standards
Accounting standards require non-current liabilities to be presented clearly and consistently. In practice, this means:
- Order of maturity: Obligations are listed based on when they are due, with earlier maturities appearing first
- Separate line items: Material liabilities such as major loans or bonds are shown as their own line items rather than grouped together
- Current portion separation: Any portion of long-term debt due within the next 12 months is reclassified as a current liability
Notes to the financial statements
The balance sheet provides a snapshot, but the notes to the financial statement offer essential detail about non-current liabilities. These disclosures typically include interest rates, maturity dates, collateral requirements, covenant terms, and multi-year payment schedules that show how obligations will be settled over time.
Financial ratios for analyzing non-current liabilities
Financial ratios help translate non-current liabilities into insights about a company’s long-term financial risk and flexibility. Lenders and investors rely on these metrics to understand how much leverage a business carries and how well it can meet its long-term obligations.
| Ratio | Formula | What it measures | Why it matters |
|---|---|---|---|
| Debt-to-equity ratio | Total liabilities / Shareholders’ equity | The extent to which a company finances its operations with debt versus equity | Higher ratios signal greater financial risk, while lower ratios may indicate unused borrowing capacity |
| Debt-to-assets ratio | Total liabilities / Total assets | The percentage of assets financed through debt | Lower ratios generally indicate a stronger balance sheet and more financial flexibility |
| Interest coverage ratio | EBIT / Interest expense | A company’s ability to cover interest payments with operating earnings | Ratios below 2.0 can raise concerns about a company’s ability to service debt |
| Long-term debt-to-capitalization ratio | Long-term debt / (Long-term debt + Equity) | The share of long-term debt in a company’s permanent capital structure | This ratio isolates long-term leverage by excluding short-term liabilities |
These ratios are most useful when viewed over time and compared against industry benchmarks. A ratio that looks high in isolation may be normal for capital-intensive industries, while the same figure could signal risk in asset-light businesses.
Why non-current liabilities matter for business health
Non-current liabilities affect how stable, flexible, and investable a business appears over the long term. They influence everything from solvency and valuation to how confidently a company can forecast cash flows.
Non-current liabilities impact business health because they:
- Shape long-term solvency: A sustainable level of long-term debt supports growth, but excessive leverage increases risk during downturns or periods of uneven cash flow
- Influence investor and lender decisions: High non-current liabilities can raise borrowing costs or limit access to new financing, while a well-structured debt profile signals disciplined capital management
- Anchor long-term cash flow planning: Loan repayments, lease payments, and interest expenses are predictable obligations that must be built into forecasts, capital budgets, and working capital plans well in advance
Common challenges in managing non-current liabilities
Managing non-current liabilities becomes more complex as businesses take on additional debt, leases, and long-term obligations. These challenges tend to surface as financing structures grow and manual processes start to strain.
Tracking multiple long-term obligations
As businesses add loans and leases with different terms, interest rates, and maturity dates, tracking everything across spreadsheets becomes difficult. Missed payment dates, overlooked rate resets, or forgotten maturities can quickly create compliance and cash flow risks.
Monitoring covenant compliance
Many long-term debt agreements include financial covenants tied to leverage or coverage ratios. Monitoring these requirements manually is time-consuming, and falling out of compliance can trigger penalties, higher interest rates, or accelerated repayment.
Timing refinancing decisions
Refinancing decisions require close attention to market conditions, credit profile changes, and prepayment terms. Waiting too long can leave a business negotiating under pressure as a maturity date approaches, often resulting in less favorable terms.
4 best practices for non-current liability management
Managing non-current liabilities effectively requires consistent oversight and a clear connection between financing decisions and business operations. These best practices can help finance teams stay compliant, reduce risk, and make better long-term decisions.
- Maintain accurate, centralized records: Store all loan agreements, lease contracts, and supporting documents in a single, accessible system. Tracking payment schedules, rate changes, covenant deadlines, and maturity dates in one place reduces the risk of missed obligations.
- Monitor ratios and trends regularly: Review key leverage and solvency ratios throughout the year, not just at reporting periods. Watching how ratios change over time helps you spot emerging risks before they threaten covenant compliance.
- Align debt structure with asset life: Match financing terms to the useful life of the assets you’re funding. Using long-term debt for short-lived assets can strain cash flow and increase refinancing risk.
Use automation for tracking and reporting: Automated tools can simplify payment tracking, covenant monitoring, and reporting. This reduces manual work and gives finance teams clearer visibility into long-term obligations.
Manage noncurrent liabilities with automated tracking and real-time visibility
Noncurrent liabilities like long-term loans, leases, and deferred revenue can strain your cash flow if you're not tracking payment schedules, amortization, and upcoming obligations with precision. Manual tracking in spreadsheets leaves room for missed payments, inaccurate forecasts, and compliance gaps that put solvency at risk.
Ramp's accounting automation software gives you complete visibility into your long-term obligations so you can plan ahead and preserve cash flow. Here's how Ramp helps you stay on top of noncurrent liabilities:
- Automate amortization schedules: Ramp automatically amortizes prepaid expenses and long-term assets across the correct periods, so your balance sheet reflects accurate liability values without manual calculations
- Track payment obligations in real time: Monitor upcoming debt payments, lease obligations, and other long-term commitments in one place so you can forecast cash needs and avoid surprises
- Sync transactions automatically: Ramp codes and syncs liability-related transactions to your ERP in real time, ensuring your books reflect current balances and payment activity without manual data entry
- Close books faster with accurate accruals: Post and reverse accruals automatically so expenses land in the right period, giving you a clear picture of your current and noncurrent liability positions at month-end
With Ramp handling the details, you can focus on strategic decisions that protect solvency, like refinancing terms, optimizing payment schedules, and maintaining healthy debt-to-equity ratios.
Try a demo to see how Ramp helps finance teams manage liabilities with confidence.
FAQs
A long-term liability becomes current when it’s due within 12 months of the balance sheet date. The portion due within the next year is reclassified as the current portion of long-term debt, while the remaining balance continues to be reported as a non-current liability.
Non-current liabilities don’t usually affect immediate cash flow, but they are central to long-term planning. Scheduled principal and interest payments are fixed commitments that must be incorporated into cash flow forecasts to ensure obligations can be met as they come due.
Secured long-term debt is backed by collateral, such as real estate or equipment, which a lender can claim if you default. Unsecured debt isn’t tied to specific assets and relies on the borrower’s creditworthiness, so it typically carries higher interest rates.
Credit agencies evaluate non-current liabilities by looking at leverage ratios, debt service coverage, and maturity profiles. A moderate, well-structured level of long-term debt can support a strong credit profile, while excessive leverage or concentrated maturities can lower credit ratings.
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