What do liabilities represent in a company's financials?

Liabilities represent the obligations or debts that a company has incurred as a result of its operations or financing activities. These are amounts that the company is legally required to pay to external parties, which can include loans, accounts payable, mortgages, and other forms of debt. In accounting, liabilities are recorded on the balance sheet and are crucial for understanding the financial position of the company.

Recognizing what a company owes helps stakeholders assess its financial health and ability to meet its obligations. This obligation is contrasted with assets, which are what a company owns, and equity, which represents the ownership interest in the company. Understanding liabilities is fundamental in analyzing a company's financial leverage and risk profile.