Loading the player...

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 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 financial requirements for outstanding loans.

BREAKING DOWN 'Long-Term Debt To Total Assets Ratio'

A year-over-year decrease in the long-term debt to total assets ratio may suggest a company is progressively becoming less dependent on debt to grow its business. The calculation for the long-term debt to total assets ratio is long-term debt / total assets = long-term debt to total assets ratio.

Example of Long-Term Debt to 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 assets ratio is $40,000/$100,000 = 0.4, or 40 percent. 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 comparable firms and the historical changes in this ratio.

What Does the Long-Term Debt to Assets Ratio Symbolize?

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.

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 number is almost always higher than a company's long-term debt to assets ratio.

RELATED TERMS
  1. Total Debt to Total Assets

    Total debt to total assets is a leverage ratio that defines the ...
  2. Asset Coverage Ratio

    The asset coverage ratio determines a company's ability to cover ...
  3. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
  4. Long-Term Debt to Capitalization ...

    The long-term debt to capitalization ratio, calculated by dividing ...
  5. Funding Operations

    Funding operations involve consolidating short-term unfunded ...
  6. Funds From Operations (FFO) To ...

    Funds from operations (FFO) to total debt ratio is a leverage ...
Related Articles
  1. Investing

    Debt Ratio

    The debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component ...
  2. Investing

    Ratio Analysis

    Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ...
  3. Investing

    Evaluating a Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  4. Investing

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.
  5. Investing

    Analyzing Apple's Debt Ratios in 2016 (AAPL)

    Discover detailed analyses of Apple's four debt ratios over quarterly and annual periods between 2014 and 2015, and learn why it is financially stable.
  6. Investing

    Analyzing Verizon's Debt Ratios in 2016 (VZ)

    Analyze Verizon's key debt ratios, and understand how the company has been able to expand in recent years by safely increasing its debt load.
  7. Investing

    Sysco and Other Big Movers In Services

    The market has been slipping so far today. The Nasdaq has fallen 0.3%; the S&P 500 has fallen 0.4%; and the Dow has declined 0.5%. The Services sector (IYC) is currently lagging behind the overall ...
  8. Investing

    How to calculate the current ratio in Excel

    Understand the basics of the current ratio, including its use in assessing a company's liquidity and learn how it is calculated in Microsoft Excel.
  9. Investing

    5 must-have metrics for value investors

    In this article, we outline the five ratios that can help value investors find the most undervalued stocks in the market.
RELATED FAQS
  1. How can a company quickly increase its liquidity ratio?

    Discover what high and low values in the liquidity ratio mean and what steps companies can take to improve liquidity ratios ... Read Answer >>
  2. How do I calculate the debt to equity ratio in Excel?

    Understand the basics of the debt to equity ratio, how it is interpreted as a measure of financial stability, and how it ... Read Answer >>
  3. Why do shareholders need financial statements?

    Discover the importance of a company's financial statements for stock shareholders in evaluating their equity investment ... Read Answer >>
  4. What are the differences between solvency ratios and liquidity ratios?

    Learn about liquidity ratios and solvency ratios, some examples of these ratios and the main difference between them. Read Answer >>
  5. Why would a company use a form of long-term debt to capitalize operations versus ...

    Learn about the different consequences of using long-term debt versus equity to raise capital for business activity, and ... Read Answer >>
Trading Center