What Is a Liability?

By Jason Hall – Updated Dec 2, 2025 at 3:31 AM EST

Key Points

Liabilities reflect what a company owes, crucial for evaluating its balance sheet.
Understanding liabilities helps assess if a company’s asset growth matches its debts.
Effective liability management can indicate potential for a company's economic growth.

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Inventory

Inventory includes items, goods, merchandise, and materials that a company either sells or uses to produce products that it sells.

So looking beyond the offsetting asset, it's useful to understand how -- and if -- a liability is leading to higher returns. Was a big loan used to build a more profitable factory? If a retailer buys a lot of inventory, can it sell for more than the amount owed on the accounts payable side of the ledger, or will the retailer have to discount excess inventory?

In summary, liabilities aren't bad or good. They’re just one part of measuring a company's balance sheet. From there, understanding how that balance sheet either helps or hinders a company's progress will help you become a better stock picker.

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About the Author

Jason Hall is a contributing Motley Fool stock market analyst with more than a decade of experience writing about dividend stocks and long-term investing. He has been with the company since 2012 and previously spent over 10 years in technical sales in the printing and information services industry. Jason also founded and operated a small food manufacturing business.

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