Long-Term Debt to Total Assets Ratio

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Long-Term Debt-to-Total-Assets Ratio

What it is

The long-term debt-to-total-assets ratio measures the portion of a company’s assets financed with long-term debt (debt obligations due in more than one year). It is a solvency metric that helps assess financial leverage and the company’s ability to meet long-term obligations.

Formula

LTD/TA = Long-Term Debt / Total Assets

Expressed as a decimal or percentage (e.g., 0.40 or 40%).

How to interpret it

  • A lower ratio indicates less reliance on long-term borrowing to finance assets and generally implies lower financial risk.
  • A higher ratio suggests greater leverage and potentially higher risk that the company may struggle to service or repay its long-term obligations.
  • Industry norms vary; a commonly cited benchmark is that a ratio below 0.5 (50%) is often viewed as healthier, but comparisons should be made against industry peers and historical trends for the same company.

Example

If total assets = $100,000 and long-term debt = $40,000:
LTD/TA = $40,000 / $100,000 = 0.40 (40%).
This means 40 cents of long-term debt for each dollar of assets.

Comparison with total-debt-to-total-assets

  • Long-term debt-to-total-assets includes only long-term liabilities.
  • Total-debt-to-total-assets includes all liabilities (long-term plus short-term/current debt).
    Because it counts more liabilities, the total-debt ratio will almost always be equal to or higher than the long-term-debt ratio.

Uses and limitations

  • Useful for trend analysis—recalculating over time reveals whether a company is increasing or decreasing its long-term leverage.
  • Best used alongside other ratios (debt-to-equity, interest coverage, current ratio) and qualitative factors (industry cycle, asset quality, cash flow stability).
  • The ratio does not reflect the cost of debt, maturity profile, or off-balance-sheet obligations; these require additional analysis.

Key takeaways

  • The ratio shows the percentage of assets financed by long-term debt and indicates long-term leverage risk.
  • Interpret the ratio relative to industry peers and the company’s historical levels.
  • Combine this metric with other financial ratios and cash-flow analysis for a fuller view of solvency and credit risk.