Definition
The Current Portion of Long-Term Debt (CPLTD) refers to the section of a company’s long-term debt that is due within the next year. It is categorized as a current liability on a company’s balance sheet. Essentially, it is the portion of long-term debt that the company needs to pay off in the next 12 months.
Key Takeaways
- The Current Portion of Long Term Debt (CPLTD) refers to the portion of a company’s long-term liabilities–including leases, loans, and other forms of debt–that need to be paid within the next fiscal year.
- CPLTD is usually included in the current liabilities section of a company’s balance sheet. This is crucial for understanding a company’s liquidity and solvency as it indicates the amount a company must pay off in the next year from its current resources.
- Investors and creditors often examine the CPLTD to determine a company’s financial health. High levels of CPLTD may suggest that a company is not generating enough cash flow to pay off its immediate financial obligations which can signify a financial risk.
Importance
The finance term “Current Portion of Long Term Debt” (CPLTD) is important as it refers to the section of a company’s long-term debt that is due within a year.
It is critical for both the company and investors because it impacts the company’s liquidity and financial stability.
For the company, CPLTD reveals how much cash they need to allocate for debt repayment in the coming year, which can affect operational decisions, such as budget allocation or investment planning.
For investors, CPLTD provides insight into the company’s short-term financial obligations and potential risks, allowing them to gauge the financial health of the company and make informed investment decisions.
Explanation
In the financial world, the term ‘Current Portion of Long Term Debt’ (CPLTD) is essential as it pertains to the finance and loan repayment structure of a business. The purpose of CPLTD is to segregate and distinguish the portion of a company’s long-term debt that is due within the upcoming year. It reflects the financial obligations that a firm is liable to honor over the next twelve months.
Essentially, it gives both the company and potential investors a clearer picture of the company’s immediate financial obligations and its capacity to meet those obligations. CPLTD is an important indicator used by financial experts, investors, and creditors to evaluate a company’s liquidity and its ability to generate cash to repay its short-term debts. It’s crucial to note that handling of CPLTD is seen as an important part of a company’s operational activity.
Credit rating agencies scrutinize it to assess the short-term liquidity of the firm, and therefore, it has an influence on the borrowing costs of the company. For investors and shareholders, it provides a lens to view the immediate liabilities that a company needs to pay off, which is a significant consideration in investment decisions. Essentially, CPLTD aids in providing additional transparency in the financial health evaluation of a company.
Examples of Current Portion of Long Term Debt
**Amazon’s Financial Statement (2020):** According to Amazon’s 2020 financial statement, the company had a long-term debt of about $33 billion. However, the current portion of their long-term debt was approximately $5 billion that needed to be paid off in the next year. This amount would be listed under current liabilities on their balance sheet and indicates to investors how much of Amazon’s cash or cash equivalents will be used for debt repayment in the near term.
**Tesla’s Financial Statement (2021):** Tesla’s 2021 balance sheet showed a current portion of long-term debt amounting to about $4 billion. This figure tells investors that Tesla would allocate part of its current assets to fulfil the debt obligations within the following year.
**Pfizer’s Financial Statement (2020):** Pharmaceutical giant Pfizer reported a current portion of long-term debt of approximately $89 billion in its 2020 financial statement. This high figure indicates that Pfizer will have to utilise a significant portion of its short-term assets or generate enough operating cash flow to satisfy this debt within a year.
Frequently Asked Questions About Current Portion of Long Term Debt
1. What is the Current Portion of Long Term Debt?
The Current Portion of Long Term Debt (CPLTD) refers to the section of a company’s long-term debt that is due within the next year. It is distinguished from long-term debt as it is due within a shorter time frame and may have different handling in terms of financial statements.
2. How is CPLTD important for a company’s financial health?
CPLTD is a crucial indicator of a company’s liquidity and financial health. Having a large ratio of CPLTD to cash or revenue may indicate that a company is not well-positioned to pay off its short-term liabilities, which can be a financial risk.
3. How is CPLTD calculated?
The CPLTD can be calculated by identifying the total outstanding long-term debt and pinpointing the portion that is due within the next fiscal year. This information is typically disclosed in a company’s balance sheet under current liabilities.
4. Can a company’s CPLTD be changed or reduced?
Yes, a company can reduce or eliminate its CPLTD by refinancing their long-term debt or paying off a portion of the debt before it becomes due. These strategies can improve a company’s financial position in the short-term, but may have other financial implications to consider.
5. How is CPLTD different from long-term debt?
Long-term debt refers to any financial obligations that are due over a period longer than one year. On the other hand, the CPLTD is the portion of these obligations that is due within the next year. Hence, while CPLTD is part of long-term debt, they are categorized and treated differently in financial books.
Related Entrepreneurship Terms
- Amortization Schedule
- Principal Payment
- Maturity Date
- Interest expense
- Balance Sheet
Sources for More Information
- Investopedia: A comprehensive source for financial concepts and terms with easy to understand definitions.
- Accounting Tools: Provides detailed explanations about various accounting and finance concepts.
- CFA Institute: Known for its strong educational materials on investing and finance related topics.
- Corporate Finance Institute: They provide a vast library of finance-related content, including an extensive glossary of financial terms.
