Long Term Debt To Total Assets Ratio

It’s just a balance sheet ratio. Long-term debt is the numerator, and it’s just debt that doesn’t come due for a year or longer. And then, in the denominator, you have total assets, short-term and long-term. You get this magic ratio which kinda sorta speaks to how “safe” the company is with respect to its debts.

A hugely high ratio would mean that the company is kissing bankruptcy (with tongue). Like...if it had a billion bucks in debt and only $300 million in assets, um, that’d be a problem. They borrowed money, invested, or used it poorly, and now they are likely dead meat.

The opposite—say, $50 million in long-term debt, debt that’ll be around a long time—with assets of a billion bucks...is likely a well-capitalized company whose balance sheet is mighty. At least for now.