Current liability

An obligation falling due within twelve months. Trade payables, short-term borrowings, the portion of long-term debt repayable within the year, accrued expenses, and tax payable belong here.

The distributor owing ₹540 crore to suppliers, ₹300 crore of working capital loans and ₹165 crore of accruals has ₹1,005 crore of current liabilities.

One item repays attention. The current maturities of long-term debt line is where a term loan that has quietly come due appears, and it is the difference between a company with comfortable long-dated funding and a company with a refinancing to arrange in eight months.

The Indian format also separates financial liabilities from other current liabilities, which is more useful than it first appears. Borrowings and trade payables sit in the first; statutory dues, advances from customers and provisions for employee benefits sit in the second. Advances from customers are worth noticing because they are a liability that will be settled by delivering goods rather than by paying cash, so a company with a large advance balance has already been paid for work it still has to do, and its future revenue is more certain than its order book alone would suggest.

Set current liabilities against current assets and you have working capital. Set them against cash generation and you have a solvency question.

Twelve months. That is the whole test.

Provisions inside current liabilities deserve one look each year. Employee benefit provisions, warranty provisions and provisions for disputed claims all sit here, and each carries a movement schedule showing what was created, what was used and what was written back. A company whose current provisions balance has grown while its business has not is either becoming more prudent or preparing for something, and the note names which provisions moved. Written-back provisions in a weak year are the reverse case, and they support that year's profit without any trading behind them.