Current Portion of Long-Term Debt
The portion of debt with a maturity of more than one year that is due within a year
The portion of debt with a maturity of more than one year that is due within a year
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.
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.
Borrower Inc. takes on a five year loan for $5,000,000. The loan terms specify a equal principal payments over the five years. The current portion of this long-term debt is $1,000,000 (excluding interest payments).
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.