Long Term Debt to Total Asset Ratio Analysis Definition
The Long Term Debt to total asset ratio analysis 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
Long Term Debt to Total Asset Ratio Calculation
Simply by divide long term debt from total assets to calculate long term debt to total asset ratio. It is an easy equation once the proper data is known.
For example, a company has $10,000 in total assets, and $5,000 in long term debt. Refer to the following calculation:
Long debt to total asset ratio = 5,000 / 10,000 = 0.5
In conclusion, the company has $0.5 in long term debt for every dollar of assets.