1. What is LT Debt to Equity Ratio?

The LT Debt to Equity Ratio measures a company's financial leverage by comparing its long-term debt to shareholders' equity. It indicates what proportion of financing comes from creditors versus owners, excluding short-term obligations.

2. How Does the Calculator Work?

The calculator uses the LT Debt to Equity formula:

Where:

• Long-Term Debt — All interest-bearing financial obligations excluding current portion (USD)
• Shareholders' Equity — Total equity including retained earnings and contributed capital (USD)

Explanation: The ratio shows how much debt a company uses to finance its assets relative to shareholder investments.

3. Importance of LT Debt to Equity Ratio

Details: This ratio helps assess a company's long-term solvency risk and capital structure. Lower ratios generally indicate less financial risk, while higher ratios suggest greater reliance on debt financing.

4. Using the Calculator

Tips: Enter long-term debt and shareholders' equity in USD. Both values must be positive, with equity greater than zero for meaningful results.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LT Debt to Equity ratio?
A: Ideal ratios vary by industry, but generally below 2.0 is considered acceptable, with under 1.0 preferred.

Q2: How does this differ from total debt-to-equity?
A: This ratio excludes short-term debt, focusing only on long-term financial obligations.

Q3: When is a high ratio problematic?
A: High ratios may indicate excessive leverage, potentially leading to financial distress if earnings decline.

Q4: How does this ratio affect investors?
A: Investors use it to assess risk - higher ratios mean higher financial risk but potentially higher returns.

Q5: Should this ratio be compared across industries?
A: No, capital-intensive industries (like utilities) typically have higher ratios than service industries.