Non-current liabilities: Definition, ratios, and types

Understanding your business’s outstanding obligations is a critical part of effective financial management.

The balance sheet is the financial report where you can find this information, but you’ll notice something...liabilities are divided into two categories: current and non-current liabilities.

In this article, we’ll focus on the latter. We’ll dive into what non-current liabilities are, how to identify them, and the role they play in financial health and business valuation.

What are non-current liabilities?

Non-current liabilities, or long-term liabilities, are financial obligations that a company is not expected to settle within the next 12 months. They typically include items such as long-term loans, bonds payable, lease commitments, and pension obligations. These liabilities are recorded on the company’s balance sheet and help assess its long-term financial stability and ability to meet future obligations. Common examples include:

• Long-term loans
• Bonds payable
• Lease obligations
• Pension liabilities

Non-current liabilities appear on the balance sheet and provide insight into a company’s long-term financial health and capacity to meet future commitments.

How to identify non-current liabilities on a balance sheet 

The standard balance sheet is divided into three core sections:

1. Assets
2. Liabilities
3. Equity

Naturally, you’ll find non-current liabilities in the liabilities section, appearing directly after your current liabilities.

Key characteristics of non-current liabilities 

Understanding how to recognize non-current liabilities and distinguish them from current liabilities helps you assess a company’s financial health and long-term stability.

Key indicators and characteristics include:

• Balance sheet item: Non-current liabilities form part of the company’s capital structure, revealing how long-term debt contributes to financing operations and assets.
• Long-term duration: Non-current liabilities will not be paid for in the next financial year. These obligations extend beyond one year, often spanning several years or even decades.
• Solvency indicator: The size and mix of non-current liabilities is important data in evaluating a company’s ability to maintain financial stability while servicing long-term obligations.
• Interest-bearing nature: Many non-current liabilities, such as loans or bonds, accrue interest over time. Interest-bearing is not a mandatory component of non-current liabilities, but it is a common characteristic.
• Contractual basis: Non-current liabilities typically have an associated contract that outlines terms such as interest rates and payment schedules.
• Disclosure requirements: Companies must disclose maturity dates, interest rates, and repayment schedules to provide transparency about long-term debt.
• Connection to financing activities: Non-current liabilities are often linked to financing decisions such as borrowing for expansion or investment in capital assets.

By reviewing both the main balance sheet and the accompanying notes, you can identify which liabilities are non-current and understand how they shape the company’s long-term financial position.

Common examples of non-current liabilities 

Typical examples of non-current liabilities you might find on the balance sheet include:

• Long-term loans
• Bonds payable
• Lease liabilities (long-term leases)
• Deferred tax liabilities
• Pension and retirement benefit obligations
• Long-term provisions (e.g., for warranties or legal claims)
• Notes payable (due beyond 12 months)
• Convertible debt
• Mortgage obligations
• Long-term portions of deferred revenue
• Asset retirement obligations (e.g., environmental cleanup costs)

Financial ratios that use non-current liabilities 

Non-current liabilities play a key role in several financial ratios that assess a company’s leverage, solvency, and long-term financial health.

Here are the five most commonly monitored and how they’re applied by finance leaders.

1. Debt-to-equity ratio

Debt-to-equity ratio compares your total debt (including non-current liabilities) to shareholders’ equity. It measures how much of the company is financed by debt versus equity.

2. Debt ratio

Debt ratio measures the proportion of your company’s total assets funded by total debt, which helps leaders and investors assess overall financial risk.

3. Long-term debt-to-capitalization ratio

Long-term debt-to-capitalization ratio evaluates the share of long-term debt relative to total capital. This shows how dependent a company is on long-term borrowing.

4. Interest coverage ratio

Interest coverage ratio compares EBIT (earnings before interest and taxes) to long-term liabilities to understand how easily your company can meet its interest payments on long-term debt.

5. Cash flow to debt ratio

Cash flow to debt ratio tells you about how effectively a company’s operating cash flow can cover its total debt obligations. It’s an indication of debt repayment capacity.

Non-current liabilities vs. current liabilities 

Take a look at your organization’s most recent balance sheet, and you’ll see that its liabilities are divided into two categories: current and non-current.

The primary distinction between these two categories of liabilities is the expected settlement timeframe.

Current liabilities are due within 12 months, such as accounts payable, short-term loans, and accrued expenses. They directly affect cash flow and working capital.

By contrast, non-current liabilities extend beyond one year, including long-term loans, bonds payable, and lease obligations. These impact solvency rather than immediate liquidity.

Other core differences between current and non-current liabilities include:

• Purpose: Current liabilities fund day-to-day operations, such as the purchase of inventory. Non-current liabilities finance long-term projects and asset purchases.
• Impact on financial health: Current liabilities impact cash flow, where high current liabilities potentially indicate short-term cash pressure if they are not adequately balanced by current assets. Non-current liabilities, when managed well, can support growth, but excessive long-term debt may weaken future flexibility.
• Differences in financial analysis: Analysts assess both current and non-current liabilities to understand liquidity and leverage, often reviewing the ratio between the two. A balanced structure indicates strong cash management and sustainable long-term funding.

The role of non-current liabilities in business valuation

When investors consider what a business is worth, non-current liabilities are a critical financial metric to assess. They significantly influence how a business is valued, as non-current liabilities impact a company's solvency, financial risk, and overall attractiveness to investors.

Impact of non-current liabilities on company solvency and risk assessment

A company’s level of non-current liabilities reflects its long-term debt exposure.

For instance, excessive leverage might raise concerns about solvency and repayment capacity, particularly where the business is asset-light or has unclear revenue projections. On the other hand, more manageable amounts of long-term debt indicate financial discipline and stability.

Impact of non-current liabilities on financial ratios 

Non-current liabilities feature prominently in some of the key financial ratios investors use to perform business valuations, such as:

• Debt-to-equity ratio
• Debt ratio
• Interest coverage ratio

These metrics help evaluate leverage, risk, and the company’s ability to meet long-term obligations, all of which are central factors in business valuation models such as discounted cash flow (DCF) and enterprise value (EV) analysis.

Impact of non-current liabilities on investor decision-making

Non-current liabilities are not inherently a bad thing. Investors interpret them as indicators of both opportunity and risk.

A balanced debt structure can signal strong capital management and growth potential, while a business with excessive long-term debt may not receive much investment interest as it carries higher perceived risk and potential future cash flow constraints as debts as paid down.

Keep track of non-current liabilities with BILL 

Staying organized with your long-term financial obligations is key to maintaining business stability and supporting smarter growth decisions.

BILL’s powerful financial operations platform can support non-current liability management with:

• Powerful integrations with accounting tools like QuickBooks and Xero
• Recurring and future-dated payments to stay on top of long-term commitments
• Real-time cash flow visibility and forecasting
• Automated approvals and audit-ready records for compliance
• Centralized tracking of loans, leases, and other long-term debts

Get started with BILL today.

Frequently asked questions

What counts as non-current liabilities?

Non-current liabilities are long-term financial obligations. The key qualifier is where the company expects to settle the debt within 12 months.

If so, it's a current liability, and if your business will not fully settle the debt within the next financial year, it is categorized as a non-current liability.

Why are non-current liabilities important for financial analysis?

Non-current liabilities help investors, business leaders, and external analysts assess a company’s:

• Long-term solvency
• Leverage
• Financial stability

By examining non-current liabilities, you can understand how a business funds its growth, manages debt, and balances financial risk.

How do non-current liabilities affect a company’s balance sheet?

Non-current liabilities appear right under current liabilities in the liabilities section of the balance sheet. They increase total liabilities and influence both the company’s capital structure and net worth. 

While a higher proportion of long-term debt can improve access to capital, it may also increase financial risk if not supported by consistent earnings and cash flow.