CHAPTER 5

Liabilities: Current, Contingent, and Long-Term Debt

Introduction

In this chapter we initially discuss liabilities and related issues in general. The topic of leases is covered in the next chapter. Debt instruments are discussed from the borrower’s perspective here, but the same concepts apply from the lender’s perspective, which will be discussed in chapter 7—Investments. Recall from chapter 1 that in financial analysis liabilities are compared with assets in order to assess a firm’s liquidity, solvency, and financial flexibility. As we discussed in chapter 1, liabilities are the opposite of assets and represent “probable future economic sacrifices as a result of past transactions and events.” Although the “future sacrifice” typically ...

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