See Also:
Financial Ratios
Debt to Equity Ratio
Debt Service Coverage Ratio (DSCR)
Operating Cycle Analysis
Standard Chart of Accounts
Download ToolLong Term Debt to Total Asset Ratio Definition
The Long Term Debt to total asset ratio defined, at the simplest form, an indication of what portion of a company's total
assets is financed from long term debt. The value varies from industry and company. Comparing the ratio with industry peers is a better benchmark.
Long Term Debt to Total Asset Ratio Explanation
Long term debt to total asset ratio explained a measure of the extent to which a company is using long term debt. It is an indicator of the long-term
solvency of a company. The higher the level of long term debt, the more important it is for a company to have positive revenue and steady cash flow. It is very helpful for management to check its debt structure and determine its debt capacity.
Long Term Debt to Total Asset Ratio Formula
The formula for the Long Term Debt to Total Asset Ratio is as follows:
Long debt to total asset ratio = long term debt / total assets
Long Term Debt to Total Asset Ratio Calculation
Long Term Debt to Total Asset Ratio, calculated simply by dividing long term debt from total assets, is an easy equation once the proper data is known.
Example: a company has $10,000 in total assets, and $5,000 in long term debt.
Long debt to total asset ratio = 5,000 / 10,000 = 0.5
This means that a company has $0.5 in long term debt for every dollar of assets.
Long Term Debt to Total Asset Ratio Example
Wiles is the CFO of a major corporation. He has managed his company properly up to this point, taking over and expanding operations to levels he had only hoped for. Wiles is now performing his monthly due dilligence.
Wiles wants to know the ratio for Long Term Debt to Total Assets for his company. This provides him information on solvency, the ability to meet financial covenants (requirements) for his loan provider, and a general measure of the performance of the corporation Wiles works for. He reviews his financial statements to find the information below. Wiles then performs a long term debt to total asset ratio calculation.
$10,000,000 in total assets and $5,000,000 in long term debt
Long debt to total asset ratio = $5,000,000 / $10,000,000 = 0.5
This means that a company has $0.5 in long term debt for every dollar of assets.
Wiles must now review his loan agreement to assure himself that the corporation he works for will not violate covenants made for the coming months of this year. He finds that his company is safe.
Wiles would like to lower this Long Term Debt to Total Asset ratio. He makes a goal of making it only .4 or 40%. Due to the fact that Wiles is keeping up-to-date with his information and goal setting he can create the path to achieving his benchmark.
Resources
For statistical information about industry financial ratios, please click the following website:
www.bizstats.comand
www.valueline.com.