What Is Long Term Debt Equity? | Stock Market For Beginners | Investing In Stocks For Beginners

Описание: What Is Long Term Debt Equity? | Stock Market For Beginners | Investing In Stocks For Beginners

In today’s video, I’m going to be talking about the long term debt to equity ratio. Let's get straight into it.

The long term debt to equity ratio is used to evaluate a company's financial leverage and is calculated by dividing a company’s total long term debt by its shareholder equity.

The long term debt to equity ratio is an important metric used when investing in stocks. It is a measure of the degree to which a company is financing its operations through debt versus wholly owned funds. More specifically, it reflects the ability of shareholder equity to cover long term debts in the event of a business downturn.

Given that the long term debt to equity ratio measures a company’s debt relative to the value of its net assets, it is most often used to gauge the extent to which a company is taking on debt as a means of leveraging its assets. A high ratio is often associated with high risk; it means that a company has been aggressive in financing its growth with debt.

A higher ratio may make it harder for a company to obtain financing in the future. This means that the firm may have a harder time servicing its existing debts. Very high long term debt to equity can be indicative of a credit crisis in the future, including defaulting on loans or bonds, or even bankruptcy.

Generally speaking, a long term debt to equity ratio below 1 would be seen as relatively safe.

The long term debt to equity ratio shouldn’t be used in isolation as it doesn’t tell you the full story of a company. It should be used alongside other tools & ratios during fundamental analysis.

Thank you for watching!

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