What Is a Maturity Mismatch?

Mary McMahon

A maturity mismatch is a type of imbalance in assets and liabilities on a company’s balance sheet. In this case, the company doesn’t have enough short term assets to meet current obligations, and may have the opposite problem with medium and long term assets and liabilities. The distribution of assets in a company’s holdings may provide clues to its level of liquidity and confidence in the market. It can also expose firms to high financial risk if they don’t use appropriate management tactics.

Not enough cash on hand might cause a maturity mismatch.
Not enough cash on hand might cause a maturity mismatch.

Balancing assets and liabilities perfectly can be difficult. A variety of tactics can be used to spread them out in order to limit risks. This can include changing market positions as well as distributing investment across different types of assets to have access to liquidity. Companies with a maturity mismatch have a short term problem because they have liabilities coming due, like loan payments, utility costs, and licensing fees, but they don’t have the assets to meet these obligations.

Looking into the long term, the firm may have more assets maturing in the future, but it can’t access them for immediate use. Meanwhile, its future obligations don’t match the assets, meaning that the company has more money than it needs for the future. While this can be a strategic move, a maturity mismatch can also be an inefficient use of assets. Bonds maturing in 10 years, for example, might be more useful if they were maturing immediately to cover upcoming liabilities.

Balance sheets should provide information about assets and liabilities and a maturity mismatch can be identified by reviewing the data. Changes between statements can also reveal maneuvering to correct a mismatch, which may provide insight into a company’s financial position. For insurers and lenders, evaluating this information is important because it may play a role in what kinds of policies and loans will be offered. If a firm has obvious liquidity problems, for example, it could be at high risk of default on a loan.

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Reliance on a maturity mismatch for information can be a mistake if investors do not consider other factors as well. Balance sheets should be viewed in context with as much data as possible about a company to determine their relevance. Extraordinary circumstances may also be discussed in an annual report to let people know what is going on and why. This may change the role of a mismatch in company finances, as it could be calculated for a specific purpose or it might be accidental and in the process of being fixed.

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