Current Portion of Long Term Debt

The portion of debt with a maturity of more than one year that is due within a year

Current Portion of Long Term Debt

Long term debt will have a maturity of more than one year. This can be anywhere from two years, five years, ten years or even thirty years. The current portion of long term debt is the amount of principal and interest of this amount due within one year’s time.

This is not to be confused with current debt, which are loans with a maturity of less than one year. Some firms will consolidate the two amounts into a generic current debt line item on the balance sheet.

 

Calculating the Current Portion

An analyst should attempt to find information to build out a company’s debt schedule. This schedule outlines the major pieces of a debt a company is obliged under, and lays it out based on maturity, periodic payments and outstanding balance. Using the debt schedule, an analyst can measure the current portion of long term debt a company owes.

 

Example

Borrower Inc. takes on a five year loan for $5,000,000. The loan terms specify equal principal payments over the five years. The current portion of this long term debt is $1,000,000 (excluding interest payments).

current portion of long term debt

 

Reducing Current Portion of Long Term Debt

A company reduces this line item by making payments towards the debt. As payments are made, the cash account decreases but the liability side decreases an equivalent amount.

Alternatively, a company with good credit standing can “roll forward” current debt, by taking on more credit to pay this loan off. If the new credit taken on is long term, the current debt is effectively rolled into the future.

 

Applications in financial modeling

From a cash flow perspective, there is no impact on whether debt is classified a current liability or non-current liability.  In financial modeling, it may be necessary to produce a full set of financial statements, including a balance sheet where the current portion of long term debt is shown separately.  This is simply to tie the numbers to what accountant will produce.  There is no impact on valuation on how the debt is categorized.

 

To learn more, check out CFI’s financial modeling courses.

 

Learn more about the Balance Sheet

Thank you for reading this guide and examples of how to assess the current portion of long term debt on a company’s balance sheet.  CFI’s mission is to help you advance your career. To keep learning and developing your knowledge we highly recommend these additional resources.