What is current portion of long term debt is and how to calculate it.

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QuestionPosted by: Joan C. Oct 21 2002, 09:04 PM

Hi: Nice site

Can you tell me what curent portion of long term debt is and how to calculate it.


Posted by: loanuniverse Oct 23 2002, 10:07 AM
Hello Joan:

Current Portion of Long-Term Debt CPLTD is the principal portion of a loan due in the next twelve months. This is much better explained with an example. Suppose that you own a company called MyCompany, Inc. and you get a loan from The bank for $100,000. This loan will be amortized over ten years and your payment will be $1,000 a month.

For simplicity purposes, we will assume that out of every payment $800 go to repay principal and $200 go to interest. Being that CPLTD deals with the portion due during the next twelve months in order to calculate it all I would have to do is multiply $800 x 12 = $9,600. Therefore, the day that you close on this loan and the bank deposits the $100,000 in your checking account, your balance sheet would look like this.

Current assets:
Cash: $100,000

Current Liabilities:
CPLTD: $9,600

Long-term Liabilities:
Bank Loan: $90,400

Why is it important to know CPLTD?

Well, since CPLTD is due very soon (within the next year), it is important to know if the company is going to be able to have enough cash flow to meet this obligation. If the amount of long-term debt principal payable within the next 12 months is too high to be serviced by the cash flow then there is a potential problem. But remember that CPLTD is an accounting term and there are a lot of possible explanations and mitigants for it when a loan is underwritten. In fact, most long term debt that is maturing will be refinanced in the normal course of business and that would not be a problem.

I hope this helps, thanks for the visit.
Author: Commercial Loan Underwriter