Definition:

The Current Portion of Long-Term Debt (CPLTD) refers to the segment of a company's long-term debt that is due for payment within the next 12 months. It is classified as a current liability on the balance sheet.

Examples

1. A company has a 10-year loan of $1,000,000 with annual payments of $100,000. The $100,000 due in the next year is the CPLTD.
2. If a business has a mortgage with monthly payments, the sum of the payments due in the next year is considered the CPLTD.

Formula:

CPLTD = Total Long-Term Debt Payment Due in Next 12 Months

How to use the metric:

The CPLTD is used to assess a company's short-term liquidity and financial health. By examining this metric, stakeholders can determine whether the company has sufficient current assets to cover its short-term obligations.

Limitations:

1. It does not provide a complete picture of a company's overall debt situation or long-term financial health.
2. It may fluctuate significantly if a company restructures its debt or takes on new long-term obligations.

Applies to:

The CPLTD metric is applicable across various industries, especially those with significant long-term financing needs, such as manufacturing, real estate, and utilities.

Doesn't apply to:

Industries with minimal or no long-term debt, such as certain tech startups or service-based companies, may find this metric less relevant as they might rely more on equity financing or short-term liabilities.

Summary:

The Current Portion of Long-Term Debt is a critical financial metric that helps assess a company's ability to meet its short-term debt obligations. While it provides insight into liquidity, it should be considered alongside other financial metrics for a comprehensive analysis of financial health.