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So some liabilities are good, especially the ones that have a very low interest rate. Too many liabilities could cause financial hardships.
Liabilities are obligations and are usually defined as a claim on assets. However, liabilities and stockholders' equity are also the sources of assets. Generally, liabilities are considered to have a lower cost than stockholders' equity. On the other hand, too many liabilities result in additional risk. Some liabilities have low interest rates and some have no interest associated with them. For example, some of a company's accounts payable may allow payment in30 days. With those payables it is better to have the liability and to keep your cash in the bank until they become due. In our personal lives, our first house was probably purchased with a down payment and mortgage loan. That mortgage loan was a big liability, but it allowed us to upgrade our living space. I viewed my mortgage loan liability as a good thing because it allowed me to own a nice home in a beautiful neighborhood. So some liabilities are good—especially the ones that have a very low interest rate. Too many liabilities could cause financial hardships
Not necessarily.
Of course not. Capital financing by liabilities is better than financed by investors for several reasons, such as reducing the risk on investors
Depending on what they are doing with the money. If it was used to buy back stock or give a huge bonus to the CEO, that would be bad.
Investing in new R&D or new stores might be good.
debt-to-equity ratio to see if it is rising or falling.
Rising debt-to-equity with rising revenues would concern me and I would want to know if maybe they are juicing their revenues with the debt,
Falling debt-to-equity with rising revenues AND earnings would make me feel better, (rising revenues being very important to this consideration), as I think it would lead me to believe that they are using their debt wisely to grow the company and their earnings.
Liabilities may arise from payment float, loans(which is a option of finance and decreases the cost of capital).
No, they are not. Especcialy when you are working in financial sector. Here liabilities (loans, obligations and so on) are one of the main instruments to get profit (e. g. getting low rated loans and giving them in a higher rates). At the same time shares are also liability and nobody can say that share is a bad thing.
In western cultures liabilities are not a bad thing "per se", as they are a way of leveraging the business and achieving hiogher returns with the same invested capital. Liabilities become a bad thing when the risk they bring into the business does not compensate for the increased value (through leverage) they generate.
I would like to know more about this question when it comes to islamic culture.
Not always.
Liabilities are generally a cheaper source of finance than equity.Some times a free source.Credit risk depends on the ability of the entity to generates profits and operating cash flows for repayment.So it all depends on the use of funds.
Liabilities both current and non-current are good as long as these do not pose any liquidity or leverage problems.
