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 categorized as a current liability on a company’s balance sheet.
Long-term debt is typically paid off in a series of periodic payments over several years. The payments due within the next 12 months are classified as current liabilities because they will need to be paid out of the company’s short-term assets. The remainder of the debt, which is not due within the next year, continues to be classified as a long-term liability.
For example, if a company has a $100,000 loan that it’s repaying over 10 years with equal annual payments, $10,000 of that loan would be classified as the current portion of long-term debt for each year, and $90,000 would remain as long-term debt.
The CPLTD is an important factor for analysts, creditors, and investors as it provides insight into a company’s liquidity and its ability to meet its obligations in the short term. It also affects the company’s working capital and current ratio, which are key indicators of financial health.
Example of the Current Portion of Long-Term Debt
Let’s say a company, XYZ Corp., took out a loan of $500,000 five years ago, which it agreed to repay over ten years in equal annual installments. This means each installment would be $50,000.
As each year passes, XYZ Corp. pays off $50,000 of the loan. After five years, the company has repaid $250,000, so there is $250,000 of the loan remaining.
On the balance sheet for the sixth year, XYZ Corp. would list $50,000 as the current portion of long-term debt, because that is the portion of the loan it must repay during the year. The remaining $200,000 (the portion of the loan that is not due within the next 12 months) would be listed as a long-term liability.
Here’s how these would be presented in the Liabilities section of XYZ Corp.’s balance sheet:
XYZ Corporation
Balance Sheet as of December 31, 2023
LIABILITIES
Current Liabilities
- Accounts Payable: $30,000
- Accrued Expenses: $20,000
- Current Portion of Long-Term Debt: $50,000
- Total Current Liabilities: $100,000
Long-Term Liabilities
- Long-Term Debt (excluding current portion): $200,000
- Other Long-Term Liabilities: $50,000
- Total Long-Term Liabilities: $250,000
Total Liabilities: $350,000
By looking at the balance sheet, you can see that XYZ Corp. needs to set aside $50,000 of its current assets during the next year to meet its loan repayment obligations. The remaining $200,000 of the loan is not due until future years and is therefore classified as a long-term liability.
