Long-term debt-to-equity ratio

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Long-term debt-to-equity ratio

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Long-Term Debt-to-Equity Ratio

In risk analysis, a way to determine a company's leverage. The ratio is calculated by taking the company's long-term debt and dividing it by the total value of its preferred and common stock. Put graphically:

Ratio = Long-term debt / (Preferred stock + Common stock)

The greater a company's leverage, the higher the ratio. Generally, companies with higher ratios are thought to be more risky because they have more liabilities and less equity.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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