What are long-term liabilities?
Long-term liabilities are obligations due beyond 12 months from the reporting date — recorded on the balance sheet below current liabilities under IFRS (IAS 1) and US GAAP (ASC 470). They represent the company’s structural funding commitments and long-duration provisions.
Main components
- Long-term debt: bank term loans, bonds, notes payable with maturity beyond 12 months. The current portion (next 12 months of principal) sits in current liabilities; the rest sits here.
- Lease liabilities (non-current): the present value of lease payments beyond 12 months, under IFRS 16 / ASC 842.
- Deferred tax liabilities: taxes due on temporary differences between book and tax accounting — recognised now, paid in the future.
- Long-term provisions: warranty obligations, restructuring provisions, legal contingencies that meet recognition criteria.
- Employee benefit obligations: long-service awards, defined-benefit pension liabilities (less common in startups).
- Convertible debt: notes that may convert to equity at a triggering event — sit here until conversion.
Long-term vs. short-term
The split is by settlement date, not by absolute size. A $10M term loan with one year remaining sits in current liabilities; a $5M lease maturing in 5 years sits in long-term. The same debt instrument may have current and non-current portions on the same balance sheet.
Why investors watch long-term liabilities
- Leverage signals: debt-to-equity, net debt to EBITDA, interest coverage all key off long-term debt levels.
- Covenant risk: long-term debt typically includes financial covenants (max leverage, min interest coverage). Breach triggers acceleration.
- Refinancing risk: when long-term debt matures and the market is unfavourable, refinancing terms tighten or fail.
Do: publish a debt maturity ladder showing principal and interest cash outflows by year for the full term of every instrument.
Don’t: stack short-term debt to fund long-term assets — the maturity mismatch is the canonical source of liquidity crises.
Reading long-term liabilities in diligence
Long-term liabilities are obligations a company does not have to settle within the next twelve months — typically bank loans, bonds, lease obligations, deferred tax and, depending on accounting treatment, instruments such as convertible notes. In a financing or acquisition they are a core diligence focus, because they tell you how much of the business is really claimed by lenders and other creditors before equity sees anything. Two points repay attention. First, classification matters: a convertible that is expected to convert behaves very differently from debt that must be repaid in cash, and covenants attached to long-term debt can restrict exactly the actions a buyer plans. Second, off-balance-sheet or contingent obligations — guarantees, earn-outs, pending claims — can be as important as the figures on the page, which is why diligence looks behind the balance sheet, not just at it.