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Fixed assets to long-term debt ratio

Method of calculation

Formula for fixed assets to long term debt ratio: tangible fixed assets / long-term liabilities * 100%

Ratio's description

This ratio complements the assessment of company's debt coverage capabilities. It indicates the extent to which long-term liabilities can be covered with company's tangible fixed assets. Tangible fixed assets constitute the potential source of financing of company's liabilities.

Ratio's interpretation

  • The greater the ratio's value, the greater the ability to cover the long-term liabilities, and also the debt capacity of the company (increasing the chances for gaining new long-term liabilities in the future).
  • When assessing the changes in the ratio's value over time (over few periods):
    • the increase of ratio's value is assessed positively, since it indicates increased debt capacity,
    • the decrease of ratio's value is assessed negatively, since it indicates decreased debt capacity.

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