Fixed assets to long-term debt ratio
Method of calculation
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.
- 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.