Definition:

Short-Term Borrowings refer to the funds that a company borrows for a period typically less than one year. These are liabilities that need to be repaid within the short term and are often used to meet immediate financial needs or working capital requirements.

Examples

Examples of Short-Term Borrowings include bank overdrafts, short-term loans, commercial paper, and lines of credit.

Formula:

There is no specific formula for short-term borrowings, as it is a balance sheet item. However, it can be calculated as the sum of all liabilities due within one year.

How to use the metric:

Short-Term Borrowings are used to assess a company's liquidity and financial health. Analysts and investors look at the level of short-term borrowings to understand how much debt the company needs to cover its short-term obligations and whether it can meet these obligations with its current assets.

Limitations:

Short-Term Borrowings do not provide insight into the long-term financial stability of a company. They also do not indicate the terms or interest rates of the borrowings, which can significantly impact financial health. Additionally, high levels of short-term borrowings might indicate liquidity issues.

Applies to:

Short-Term Borrowings are relevant to most industries, especially those with significant working capital needs, such as retail, manufacturing, and wholesale.

Doesn't apply to:

Industries with minimal short-term financial needs or those primarily operating on a cash basis, such as some service industries, may not rely heavily on short-term borrowings.

Summary:

Short-Term Borrowings are a crucial component of a company's financial structure, providing insight into its liquidity and ability to meet short-term obligations. While useful for assessing immediate financial health, they do not provide a complete picture of long-term stability and must be considered alongside other financial metrics.