The long-term debt-to-total-assets ratio is a key tool for investors and analysts to measure a company’s financial health and assess whether it has the capacity to manage its debt. This ratio acts as a gauge of the company’s leverage or the amount of debt it has relative to its assets. It indicates the risk that a company will have difficulty meeting its financial obligations in the long run.

The formula to calculate the long-term debt-to-total-assets ratio is:

Long-Term Debt to Total Assets Ratio = Long-Term Debt / Total Assets

To calculate this ratio, the total amount of long-term debt, such as term loans, bond notes and other long-term debt, is divided by the total value of assets. Long-term debt includes all debt that must be paid off in more than one year such as bonds, mortgages, and long-term leases. The total assets includes both current and long-term assets, i.e. both tangible and intangible assets such as cash, accounts receivable, inventory, fixed assets and goodwill.

The long-term debt-to-total-assets ratio can be used to assess the sustainability of a company’s debt. A higher ratio could indicate that the company has a larger amount of debt relative to its assets, indicating a higher risk of bankruptcy or insolvency. A lower ratio indicates that the company has higher financial flexibility and is more likely to be able to handle its debt payments.

The long-term debt-to-total-assets ratio can be a useful tool to compare one company’s debt status to another. By looking at the short-term and long-term debt-to-assets ratio of different companies, investors can gain a good indication of the financial condition of the company. This ratio can also be used to determine how efficiently a company is using its debt structure over a given period of time.

In general, a company with a long-term debt-to-total-assets ratio lower than 1.00 is considered to be better off financially than a company with a ratio higher than 1.00. The long-term debt-to-total-assets ratio is just one component of the broader solvency ratio, however. It is important to complement the ratio with other financial ratios to gain a better understanding of a company’s financial health.