Define liabilities in a financial context.

In a financial context, liabilities refer to the obligations or debts that a company owes to external parties, such as lenders, suppliers, or creditors. These obligations can arise from borrowing money, purchasing goods and services on credit, or other financial commitments that require future payments. Liabilities are fundamentally important in accounting because they represent claims against the company's assets—essentially, they indicate how much of what the company owns is financed by debt rather than equity.

Understanding liabilities is crucial for assessing a company's financial health. They provide insight into the company's leverage and ability to meet its financial commitments. This contrasts with other terms provided in the choices: assets represent what the company owns, revenue pertains to income generated from sales, and investments made by shareholders refer to equity, neither of which encapsulates the essence of what liabilities are in financial reporting. The definition that identifies liabilities as obligations or debts accurately captures the responsibilities a company must address, making it the correct choice in this context.