Noncurrent Liabilities: Definition, Examples, and Key Ratios

What are noncurrent liabilities?

Noncurrent liabilities (also called long-term liabilities or long-term debt) are obligations on a company’s balance sheet that are not due within the next 12 months. They contrast with current liabilities, which must be settled within one year.

Why they matter

• Noncurrent liabilities help assess a company’s long-term solvency and capital structure.
• Current liabilities measure short-term liquidity; noncurrent liabilities show how much long-term debt and future obligations the company carries.
• Stable, predictable cash flows allow a company to support more long-term debt without substantially increasing default risk.

Common examples

Noncurrent liabilities typically include:
* Long-term loans and mortgages (excluding the portion due within 12 months)
* Bonds payable (the portion not payable within 12 months)
* Debentures
* Deferred tax liabilities
* Long-term lease obligations
* Pension and other post-employment benefit obligations
* Deferred revenue and deferred compensation (when payable beyond one year)
* Long-term warranties and certain healthcare liabilities

Note: The portion of long-term debt due within the next 12 months is shown separately as the current portion of long-term debt. Debt due within 12 months can be classified as noncurrent only if there is intent and an arrangement to refinance it into a long-term obligation.

How investors and creditors use them

• Long-term investors examine noncurrent liabilities to judge how aggressively a company uses leverage.
• Lenders focus more on short-term liquidity, but they also consider long-term obligations when assessing repayment capacity over time.
• Analysts compare noncurrent liabilities to cash flow to evaluate whether ongoing operations can meet long-term obligations.

Key ratios and measures

Useful ratios that incorporate noncurrent liabilities include:

• Debt ratio: total debt ÷ total assets — indicates overall leverage.
• Long-term debt-to-total-assets: noncurrent debt ÷ total assets — focuses on long-term leverage.
• Long-term debt-to-capitalization: long-term debt ÷ (long-term debt + equity) — measures the share of capital financed by long-term debt.
• Cash flow-to-debt ratio: operating cash flow ÷ total debt — estimates how long it would take to repay debt using cash flow.
• Interest coverage ratio: EBIT ÷ interest expense — shows the ability to meet interest payments.
• Liquidity ratios (current ratio, quick ratio, acid-test): used alongside the above to assess short-term payment ability.

Reporting considerations

• Classify obligations by their expected settlement date: within 12 months (current) or beyond (noncurrent).
• Disclose the current portion of long-term obligations separately.
• If management plans and has an agreement to refinance short-term debt into long-term debt, it may be presented as noncurrent with appropriate disclosure.

Bottom line

Noncurrent liabilities are long-term obligations that shape a company’s capital structure and long-term financial risk. Evaluating them alongside cash flows, assets, and key coverage ratios gives a clearer picture of solvency and leverage, helping investors and creditors make informed decisions.