Financial Management: Principles and Applications, 13/e

18.4 Managing Current Liabilities

The firm’s current liabilities include all of its debt obligations that must be repaid in one year or less. These liabilities include unsecured and secured forms of credit (see Table 18.2). Unsecured current liabilities include trade credit, unsecured bank loans, and commercial paper. These forms of credit are unsecured in that they are backed only by the lender’s faith in the ability of the borrower to repay the funds when due.

Secured current liabilities include loans that involve the pledge of specific assets as collateral in the event the borrower defaults on the payment of principal or interest. Both accounts receivable and inventories can serve as collateral for short-term loans that are made by a variety ...