We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Long-Term Debt Ratio?

By John Lister
Updated Feb 04, 2024
Our promise to you
WiseGEEK is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGEEK, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

The long-term debt ratio is a measure of how much debt a company carries compared with the value of its assets or its equity. It is not strictly a measure of solvency, but it does give an insight into the fundamental financial health of a company. A company with a high long-term debt ratio is more at risk in the event of a business downturn.

There are two potential interpretations of long-term debt ratio. One compares long-term debt with the total value of a company's assets. Another compares long-term debt with the shareholder equity, which is made up of the company's assets minus its liabilities. As long-term debt is a key part of these liabilities, the two ratios are effectively different calculations to reach largely similar analytical goals. It is important, though, to make sure two specific ratio figures under comparison were worked out in the same way.

When calculating the debt ratio, an analyst needs to distinguish between current and long-term liabilities. It is the latter of these categories that covers long-term debts. Usually the distinction is that current liabilities comprise debts that the company expects to repay in the next accounting period, most commonly the coming year.

The usefulness of the long-term debt ratio is limited by the presence of credit facilities. The long-term liabilities figured in a company's accounts will usually only cover the actual amounts owed, but the account will separately list the total credit available, for example with an overdraft facility or a credit line from a supplier. These may influence the analyst's assessment of the company. For example, a company may appear to be relying too heavily on its overdraft, which may mean the situation will get worse if there is a large limit still to use. Such factors are harder to quantify.

The long-term debt ratio will naturally be of most interest to long-term creditors. Short-term creditors are generally more interested in cash flow, as this influences whether the money will be in the right place at the right time to repay them. Long-term creditors are more interested in the overall picture of debt, as this gives an insight into whether the company is likely to be able to meet its obligations as a whole, and how much competition the creditor will have if the company is struggling to repay debts.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.