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Long-term debt to equity

Method of calculation

Formula for long term debt to equity: long-term debt / equity * 100%

Ratio's description

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.

Ratio's interpretation

  • 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.

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