Short Term Debt
These are the debts that firms have to pay within one
year of time. This normally includes short term bank loans taken from different
financing firms and banks. This is one of the major current liabilities of a
firm.
Importance of Short Term Debt
The amount of short term debt needs to be backed by
current assets because short term liabilities must be paid back within a year
time period. So, this is a very much important indicator of financial health of
a firm. If the amount is more than the current assets like cash then it is
assumed that the firm will be in trouble in future to pay its short term debt
obligations. Normally firms take short term loans to maintain working capital.
This item is presented in the balance sheet as a short term liability.
Companies must clearly and precisely identify short term debts that it will
have to pay.
No comments:
Post a Comment