Information > Financial Terms > This page

Fixed Liabilities
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

Long-term debt consisting of probably future sacrifices of economic benefits arising from present obligations that are not payable within the operating cycle of the business, or within a year if there are several operating cycles within one year.  Examples of fixed liabilities, or long-term liabilities, include bonds payable, long-term notes payable, mortgages payable, pension obligations, and lease obligations.  Long-term debt represents a somewhat permanent method of financing growth and is often used to increase earnings whenever a larger rate of return can be earned on the borrowed funds than is paid out of after-tax interest (leverage).  Typically, long-term creditors have no vote in management matters and receive a stated rate of interest.  A distinction is usually made between long-term debt and equity financing.  A debt instrument typically has a maturity date for the face value (principal amount) to be repaid to the lender.

Long-term debt is often subject to covenants or restrictions for the protection of lenders.  Bond indentures and note agreements are often used to reflect these covenants or restrictions.

Back to Information