When business secures debt, there are legal obligations between the parties. If the business does not fulfil those obligations, for example, making timely payments, the
Current & Long Term Debt Current portion of long term debt: amount payable in the next financial year (following 12 months) Long term debt =
Debt-Equity Ratio Ratio: Total Debt / Total Equity = % The higher the debt-equity ratio, the higher the risk of the business Ratio rises/falls if
Debt versus Liability A provider lends an amount to the business & there is obligation to repay the debt Liability – ALL obligations, something owed
The business has an obligation to repay the debt (principal & interest) Repaying interest on the debt applies whether the business makes a profit or
Debt A provider (e.g bank) lends an amount to the business The business has an obligation to repay the amount borrowed (debt) Amount borrowed is
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