Debt on the Balance Sheet: Current and Long-Term

Introduction

At the start of February 2025, Home Depot's senior notes had a principal amount of $51.1 billion. Its balance sheet carried them at $49.7 billion. Its notes disclosed a fair value of $45.5 billion. All three figures describe the same bonds on the same date, and each answers a different question: what the company must repay at maturity, what the accounting records as owed today, and what it would cost to buy the bonds back in the market.

For a banker, debt is the most consequential liability on the balance sheet. It sets leverage ratios, sits at the center of the bridge from enterprise value to equity value, and determines whether a company can fund an acquisition or survive a downturn. Reading it correctly means knowing where each piece appears, how it is measured, and what the debt note adds that the balance sheet leaves out.

Borrowings usually appear in three places. Short-term borrowings cover debt due within a year when it was raised, such as commercial paper and drawings on revolving credit facilities. The current portion of long-term debt is the part of longer-dated debt that falls due within the next twelve months. Long-term debt is the remainder. Finance lease obligations are often included in debt, while operating lease liabilities are presented separately, a distinction rooted in the two lease models of Accounting Standards Codification (ASC) 842, explained in how lease accounting works. Where all of these sit among the other liabilities is shown in how the balance sheet works. Home Depot's fiscal 2024 annual report shows the pattern:

Current portion of long-term debt

The part of a company's long-term borrowings that is due for repayment within twelve months of the balance sheet date. It is presented in current liabilities, while the remainder of the debt stays in noncurrent liabilities.

The jump in Home Depot's current installments, from $1.4 billion to $4.6 billion, reflects bonds maturing during the following year. That figure is the first thing a credit analyst checks, because it shows how much the company must refinance or repay in the near term.

Debt is carried at amortized cost, not at market value. The carrying amount starts at the proceeds received, the face value less any original issue discount and less the fees paid to arrange the debt, and moves toward face value over the life of the debt as those amounts are amortized into interest expense. Since Accounting Standards Update (ASU) 2015-03, as Deloitte's summary of the change explains, debt issuance costs are presented as a direct deduction from the carrying amount of the debt rather than as a separate asset, the same way discounts are shown. Fees for a revolving credit facility are the exception: they may still be carried as an asset. Home Depot's carrying amount also reflects fair value hedge adjustments on bonds swapped from fixed to floating rates.

A simple case shows the mechanics. A company issues $1,000 of bonds at 98% of face value and pays $10 of underwriting and legal fees, so it receives $970. The balance sheet records the debt at $970, not $1,000. Over the bond's life, the $30 gap is amortized into interest expense, so reported interest exceeds the cash coupon each year and the carrying amount rises until it reaches $1,000 at maturity. The full method is set out in debt issuance costs and original issue discount, and the way carrying value and interest expense evolve together in debt accounting basics.

Carrying value of debt

The amount at which debt is recorded on the balance sheet: the principal, less unamortized discounts and debt issuance costs, plus unamortized premiums, with any hedge accounting adjustment added or deducted. It converges on the principal as the debt approaches maturity.

The fair value is disclosed in the notes, not recorded on the balance sheet. When market interest rates rise above the coupons a company locked in, its bonds trade below par and fair value falls below carrying value, as with Home Depot, where much of the debt was issued when rates were lower. Each measure has a use:

Classification follows legal maturity, with a few rules that can move debt between the two categories. Debt that becomes callable by the lender because the company has breached a covenant is classified as current unless the lender has waived the right for more than a year. Under US GAAP, short-term debt that the company has refinanced on a long-term basis before the financial statements are issued, or has a committed facility to refinance, can be classified as long-term. Revolving credit drawings are classified according to the facility's terms and how long the company intends and is able to keep them outstanding.

The classification matters most when it changes suddenly. A covenant breach that moves a large loan into current liabilities can turn a comfortable liquidity position into a going-concern question overnight, which is why the debt note's description of covenants, and the company's headroom against them, deserves as much attention as the amounts. Covenants are usually expressed as maximum leverage or minimum coverage ratios, defined in leverage and coverage ratios.

Year-end debt can understate how much a company actually borrows during the year. Home Depot's annual report explains that in May 2024 it increased its commercial paper program from $5.0 billion to $19.5 billion in connection with financing its acquisition of SRS Distribution, and its short-term borrowings reached a maximum of about $15.3 billion during the year, before falling to $316 million at year end as the company issued longer-term bonds. A banker looking only at the closing balance would see almost no short-term debt.

Undrawn revolving credit facilities do not appear on the balance sheet at all, but they matter to liquidity analysis. The notes disclose their size, maturity and any amounts used to back commercial paper or letters of credit, which together show how much the company could borrow quickly if needed.

The balance sheet gives totals; the debt note gives the detail a banker needs. It typically lists each borrowing with its interest rate, fixed or floating, maturity, principal and carrying amount, together with a schedule of principal repayments for each of the next five years, the terms of credit facilities and the main covenants.

From it, a banker can build a maturity profile, estimate the average cost of debt, identify floating-rate exposure, and see which debt is secured and which ranks ahead of the rest. Home Depot's note, for example, lists among its June 2024 issues $600 million of floating-rate notes due December 2025, with interest reset quarterly from the Secured Overnight Financing Rate, alongside fixed-rate bonds stretching to 2064.

Secured Debt, Unsecured Debt and Structural Priority

The note also shows where each lender stands if things go wrong. Secured debt, such as a term loan backed by the company's assets, is repaid first from the value of its collateral; senior unsecured notes, like most of Home Depot's bonds, rank equally with other general creditors; subordinated debt ranks behind them. Where the debt sits in the group matters too: bonds issued by a holding company rank behind the creditors of operating subsidiaries for those subsidiaries' assets unless the subsidiaries guarantee them. None of this changes the amount on the balance sheet, but it decides how much each lender would recover in a restructuring and how rating agencies view each instrument.

Which debt-like items join the borrowings in the bridge to equity value, such as leases, pensions and certain accruals, is a valuation judgment covered in the Valuation guide's article on the equity value to enterprise value bridge.