What are current liabilities?

Current liabilities refer to obligations that a company expects to settle within a year from the date of the balance sheet. These include items such as accounts payable, short-term loans, accrued expenses, and other debts that are due within the operating cycle of the business. Businesses typically manage their current liabilities carefully because they need to ensure they have sufficient liquidity to meet these obligations in the short term.

The focus on short-term obligations is crucial for assessing a company’s financial health and liquidity, which are essential for maintaining operations and avoiding the risk of insolvency. Understanding current liabilities helps investors and managers gauge how well a company can manage its immediate debts and obligations in relation to its available current assets.

The other definitions provided do not accurately describe current liabilities. Obligations to be settled within five years refer to a mix of both current and long-term liabilities, not exclusively current. Long-term debts focus on obligations that will be settled over a period greater than one year, and investments are assets, not liabilities at all.