Long Term Debt To Total Assets Ratio
Definition of 'Long Term Debt To Total Assets Ratio'
A measurement representing the percentage of a corporation's assets that are financed with loans and financial obligations lasting more than one year. The ratio provides a general measure of the financial position of a company, including its ability to meet financial requirements for outstanding loans. A year-over-year decrease in this metric would suggest the company is progressively becoming less dependent on debt to grow their business. The calculation for the long term debt to total assets ratio is:
Long term debt to total asset ratio = long term debt / total assets
Investopedia explains 'Long Term Debt To Total Assets Ratio'
For example, if a company has $100,000 in total assets with $40,000 in long term debt, its long term debt to total asset ratio would be $40,000/$100,000 = 0.4. This indicates that the company has $0.4 in long term debt for each dollar it has in assets. In order to compare the overall leverage position of the company, investors should look at comparable firms and the historical changes in this ratio.