Long-term debt to equity
Method of calculation
This ratio complements the information provided by the debt-to-equity ratio by including the information on long-term debt. The desired values of this ratio are below 100%. If the value is much above 100%, then the company is considered as having excess debt level, which may pose a threat to its financial security.
- Values above 100% are assessed negatively – there is a risk of losing the financial credibility.
- High values and an increasing trend are assessed negatively and interpreted as a deterioration of company's creditworthiness, because of the growing influence of long-term debt on the level of equity.
- Low values and a decreasing trend are assessed positively and interpreted as an improvement of company's creditworthiness, because of the lowered influence of long-term debt on the level of equity.