This long term debt to capitalization ratio calculator measures the financial leverage of a company by dividing its long term debts by its total capital. There is more info on how to calculate this indicator below the tool.

Long term debts:*
Preferred stock:
Common stock:

How does this long term debt to capitalization ratio calculator work?

The formula applied by this long term debt to capitalization ratio calculator is detailed below:

LTDCR = Long term debts / (Long term debts + Preferred stock + Common stock)

This indicator is often used to:

- Assess the control level utilized by a company;

- Compare two or more competitors on their financing strategy, implicitly their risk exposure;

- Evaluate how much a company relies on long term debts and how much on stocks;

- Check whether a corporation’s strategy is aligned with the economic context;

- Evaluate the total risk of investing in a specific business.

The interpretation of the long term debt to capitalization ratio level

If the ratio is higher [tends to equal 1 (100%)] it means that the company in question uses debts to finance its activity in a higher proportion than selling stocks, which typically is considered a riskier strategy due to the unpredictable changes of the interest rates. And so, it is considered that the higher the ratio is, the weaker the company is from a financial point of view.

Example of LTDCR ratio calculation

Let’s assume that an online magazine has the following financial status:

  • Long term debts = $100,000

  • Preferred stocks = $50,000

  • Common stocks = $60,000

In this scenario the LTDCR ratio is $100,000 / ($100,000  + $50,000 + $60,000) which equals to 0.48 (or 47.62%).

30 Apr, 2015