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Definition
Total Current Liabilities is the total amount of liabilities that the company needs to pay over the next 12 months.
Total Current Liabilities = Account Payable + Current Portion of Long-Term Debt + Other Current Liabilities
The increase of Total Current Liabilities of a company is not necessarily a bad thing. This may conserve the companys cash and contribute positively to cash flow.
Total Current Liabilities is linked to Total Current Assets through Working Capital and the Current Ratio. The Current Ratio is equal to dividing total current assets by total current liabilities. It is frequently used as an indicator of a company's liquidity, its ability to meet short-term obligations.
Total Current Liabilities is also linked to Working Capital, Net working capital is calculated as Total Current Assets minus Total Current Liabilities.
Formula
Total Current Liabilities =
Account Payable +
Current Portion of Long-Term Debt +
Other Current Liabilities Beaware
Stay away from companies that roll over the debt e.g. Bear Stearns
When investing in financial institutions, Buffett shies from those who are bigger borrowers of short term than long term debt.
His favorite Wells Fargo has 57 cents short term debt for every dollar of long term.
Aggressive banks (like Bank of America) has $2.09 short term for every dollar long term
Related Terms
Account Payable,
Current Portion of Long-Term Debt,
Other Current Liabilities
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