Long-Term Debt-to-Total-Assets Ratio: Definition and Formula (2024)
What Is the Long-Term Debt-to-Total-Assets Ratio?
The long-term debt-to-total-assets ratio is a measurement representing the percentage of a corporation's assets financed with long-term debt, which encompasses loans or other debt obligations lasting more than one year. This ratio provides a general measure of the long-term financial position of a company, including its ability to meet its financial obligations for outstanding loans.
The Formula for the Long-Term Debt-to-Total-Assets Ratio
What Does theLong-Term Debt-to-Total-Assets RatioTell You?
A year-over-year decrease in a company's long-term debt-to-total-assets ratio may suggest that it is becoming progressively less dependent on debt to grow its business. Although a ratio result that is considered indicative of a "healthy" company varies by industry, generally speaking, a ratio result of less than 0.5 is considered good.
Key Takeaways
The long-term debt-to-total-assets ratio is a coverage or solvency ratio used to calculate the amount of a company's leverage.
The ratio result shows the percentage of a company's assets it would have to liquidate to repay its long-term debt.
Recalculating the ratio over several time periods can reveal trends in a company's choice to finance assets with debt instead of equity and its ability to repay its debt over time.
If a company has $100,000 in total assets with $40,000 in long-term debt, its long-term debt-to-total-assets ratio is $40,000/$100,000 = 0.4, or 40%. This ratio indicates that the company has 40 cents of long-term debt for each dollar it has in assets. In order to compare the overall leverage position of the company, investors look at the same ratio for comparable firms, the industry as a whole, and the company's own historical changes in this ratio.
If a business has a high long-term debt-to-assets ratio, it suggests the business has a relatively high degree of risk, and eventually,it may not be able to repay its debts. This makes lenders more skeptical about loaning the business money and investors more leery about buying shares.
In contrast, if a business has a low long-term debt-to-assets ratio, it can signify the relative strength of the business. However, the assertions an analyst can make based on this ratio vary based on the company's industry as well as other factors, and for this reason, analysts tend to compare these numbers between companies from the same industry.
The Difference Between Long-Term Debt-to-Asset and Total Debt-to-Asset Ratios
While the long-term debt to assets ratio only takes into account long-term debts, the total-debt-to-total-assets ratio includes all debts. This measure takes into account both long-term debts, such as mortgages and securities, and current or short-term debts such as rent, utilities, and loans maturing in less than 12 months.
Both ratios, however, encompass all of a business's assets, including tangible assets such as equipment and inventory and intangible assets such as accounts receivables. Because the total debt-to-assets ratio includes more of a company's liabilities, this numberis almost always higher than a company's long-term debt to assets ratio.
A company's long-term-debt-to-total-asset ratio measures its leverage and acts as a metric for determining its solvency. The ratio is calculated by dividing total long-term debt (i.e. debt with more than a year to maturity) by total assets.
The return on total assets ratio is calculated by dividing a company's earnings after tax by its total assets. Total assets are equal to the sum of the shareholders' equity and the company's debt.
To calculate long-term debt to equity ratio, divide long-term debt by shareholders' equity. As we covered above, shareholders' equity is total assets minus total liabilities.
The debt-to-equity ratio (D/E ratio) depicts how much debt a company has compared to its assets. It is calculated by dividing a company's total debt by total shareholder equity. Note a higher debt-to-equity ratio states the company may have a more difficult time covering its liabilities.
The Long Term Debt to Assets Ratio is a measure of the financial leverage of the company. It tells you what percentage of the firm's Assets is financed by Long Term Debt and is a measure of the level of the company's leverage. It is calculated as Long Term Debt divided by Total Assets.
A company's debt ratio can be calculated by dividing total debt by total assets. A debt ratio of greater than 1.0 or 100% means a company has more debt than assets while a debt ratio of less than 100% indicates that a company has more assets than debt.
Share. Long-term liabilities, also called long-term debts, are debts a company owes third-party creditors that are payable beyond 12 months. This distinguishes them from current liabilities, which a company must pay within 12 months.
You collect all your long-term debts and add their balances together. You then collect all your short-term debts and add them together too. Finally, you add together the total long-term and short-term debts to get your total debt. So, the total debt formula is: Long-term debts + short-term debts.
Total Long Term Debt = Current Portion of Long Term Debt + Non-Current Portion of Long Term Debt. There are situations where companies can have a current portion of long term debt and have no non-current portion of long term debt (and vice versa). In those situations, we will continue to sum up these components.
By dividing the company's total long term debt — inclusive of the current and non-current portion — by the company's total assets, we arrive at a long term debt ratio of 0.5. The 0.5 LTD ratio implies that 50% of the company's resources were financed by long term debt.
You can calculate your business' debt to equity ratio (D/E) by dividing the total liabilities by shareholders' equities. In other words, it is represented by the total debt divided by shareholder shares. This essential information is present in the balance sheet of every company.
How do I calculate my debt-to-income ratio? To calculate your DTI, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.
How to Calculate the Loan-to-Value Ratio. An LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property, expressed as a percentage. For example, if you buy a home appraised at $100,000 for its appraised value, and make a $10,000 down payment, you will borrow $90,000.
Address: 569 Waelchi Ports, South Blainebury, LA 11589
Phone: +9958996486049
Job: Sales Manager
Hobby: Web surfing, Scuba diving, Mountaineering, Writing, Sailing, Dance, Blacksmithing
Introduction: My name is Prof. Nancy Dach, I am a lively, joyous, courageous, lovely, tender, charming, open person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
:max_bytes(150000):strip_icc()/final3-07a0e9da12dd4aa9abc20e6d8b3dd9b2.jpg "Long-Term Debt-to-Total-Assets Ratio: Definition and Formula (1)")
