What is the long -term debt ratio?
Long -term debt ratio is a measure of how much debt the company bears compared to its assets or its own capital. It is not a strictly level of solvency, but provides insight into the basic financial health of the company. A company with a high long -term debt ratio is more at risk in a business decline.
There are two potential interpretations of the long -term debt ratio. One compares the long -term debt with the total value of the company's assets. Others compare the long -term debt to the shareholder, which consists of the assets of minus its obligation. Since the long -term debt is a key part of these obligations, both ratios are effectively different calculations to achieve predominantly similar analytical goals. However, it is important to ensure that two specific ratio data are elaborated in the same way. It is the latter of these categories that cover long -term debts. Usually the difference is that current obligations include debts thatT expects that in the next accounting period it repays, most often next year.
The usefulness of the long -term debt ratio is limited by the presence of credit facilities. Long -term liabilities that are listed in the Company's accounts usually only cover the actual amounts, but the account will separately state the total available credit, for example with an overdraft or credit line from the supplier. This may affect the evaluation of the company analytics. For example, it may seem that society relys too strongly to its overdraft, which may mean that the situation deteriorates if it still uses a large limit. Such factors are more difficult to quantify.
Long-term debt ratio will naturally be the most interesting for NG-Term. Short -term creditors are generally interested in cash flow, because it affects whether the money will be in the right place at the right time to repay them. Long -term believeSum is more interested in the overall picture of the debt, because it provides a look at whether the company is likely to fulfill its obligations as a whole and how much competition will the creditor have if the company is trying to repay debts.