LONG-TERM LIABILITIES

LONG-TERM LIABILITIES

Along with equity, long-term liabilities are a source of financing of assets.

Payments spread over a longer period of time, relieve the pressure on current cash requirements. L/T liabilities often finance non-current assets. Why?

Long-term funds can be borrowed from:

- Banks: mortgage, loan agreements

- Commercial paper market: your unsecured promissory note sold to another company. That is, you borrow from other companies.

- Bond market: your bonds first sold by an investment banker or by private placement, then publicly traded on a bond market. That is, you borrow from the public.

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In all three cases, the borrowing company receives cash, and makes a promise to repay the amount borrowed (plus interest) at a point in the future.

With long-term liabilities (for the first time), we will recognize "the time value of money".

Which would be preferable?
$100 given to you today, or
$100 given to you in three years


WHY?


The $100...