Financial statement ; 2) Balance sheet ; liabilities

Last post was about current and long term assets, this time I will look at liabilities that can also be found on the balance sheets of the companies. 

Liabilities are all the obligations, loans, etc. that one party owes to another. For example these obligations could be money, goods or services.

Here is the first balance sheet we will look at ( Hercules Offshore ticker: HERO) : 

Just to remind, you can always check out the balance sheets of most of the companies on finance.yahoo.com on "Balance sheet" section. 

So,as you most probably have noted, each company will have short term and long term liabilities. Each company will plan when it is going to clear those liabilities in the future and it is going to split them depending on the nature of each obligation. We can look at the different group separately:

1) Account payable - last time we covered net receivables which is closely related to account payables. If a consumer can consume e.g. company's goods and not paying for them at the moment of the consumption then the opposite thing could happen as well . In other words , the company's managers may use the someone's inventory and not paying for it at the moment of consumption. This obligation will be recorded on the balance sheet as Account Payable .

  You can always check out whether the company owes money or whether it has more obligations. Our example with HERO you can make a comparison between the quarter 31.12.2013 and 30.09.2013 and you can see that 231,015-194,585= 36,480 and 187,812-203,419=-15,607 , which shows  that the company has increased its net receivables (assets) and at the same time it has decreased its account payables (liabilities)

2) Short/Current Long Term Debt - this is where the loans from banks are going to be included. It is called Current Long Term Debt because although companies are going to pay those loans within a year , most of the times there is a residual part of long term deficit that is accumulated as debt .

Generally speaking , current liabilities are to be paid within one year. If the number in the section "Other current liabilities" is relatively too large and you are interested to see what is "hiding" behind it, you can research it on the company's 10K and sometimes you can find something helpful on the so-called 8K ( this is a report on events that has happened on the last fiscal year- it could be bankruptcy, acquisition ,etc. 

Long term liabilities :

3) Long term debt - debt accumulated throughout the years. Going back to the example with HERO , you can see that something happened after the 30.06.2013 quarter. I checked out its quick and current ratio ; its debt/equity ratios as well on finviz.com :

Quick Ratio	2,40
Current Ratio	2,40
Debt/Eq	1,33
LT Debt/Eq	1,31

You can conclude that despite the good numbers at current and quick ratio , there could be serious problems in the long term with this company because of Debt/Eq=1,33 . This means that this company has a larger debt than its actual equity (Equity=Assets-Liabilities). But in the short term is doing well ( you can see that from the current and quick ratio).

4) Minority interest - Refers to acquisition of either an investor or another company. The ownership of the new holder will be less than 50% which implies that this party do not control the company (it has to be more than 51% in order to be owner of the company.).

These were the indicators about liabilities that you will find on most balance sheets . I just wanted to make one last point for HERO since we are talking about it :

This is what you should know about liabilities. Next time I will look for explanation about equity and this will be the last part for balance sheets. 

Plamen Filipov

Surrey Investing Society