Long-Term Debt/Capitalization Ratio

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Long-Term Debt/Capitalization 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 sum of its long-term debt and its preferred and common stock. Put graphically:

Ratio = Long-term debt / (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.
References in periodicals archive ?
In addition to what has already been said, it is worth highlighting that the relationships between the inverse Mill's ratio and short- and long-term debt ratios are statistically significant, whether taking young or old SMEs as the unit of analysis.
On the other hand, old SMEs' greater ability to obtain long-term debt can contribute to a greater magnitude of the adjustments of long-term debt toward target long-term debt ratio.
The costs of adjustment toward target long-term debt ratio borne by young SMEs appear to be higher than the costs of financial imbalance.
As for the long-term debt ratios of the Taiwanese firms, the ratio of profits to the equity (ROE) is found to be positively effective--contradictory to the negatively hypothesized relation, while it is negatively effective on both short and total debt ratios.
Briefly, the test results for the developed country context show that the model works best for the explanation of the drivers of the total and long-term debt ratios.
Prior to their bankruptcies, the sample firms have significantly lower operating margins and cash balances, lower market-to-book ratios, higher nondebt tax shields (net operating loss carryforward), higher short- and long-term debt ratios, and substantially higher total debt ratios than their respective industry norms.
Although Chapter 11 firms materially reduce short-term debt while in court, long-term debt ratios and total debt ratios remain significantly higher than industry medians.
Tables III and IV report results from regressing long-term debt ratios and total debt ratios, respectively, against the book value of assets; the industry median ratio of market value of assets to book value of assets; operating income scaled by assets; net property, plant, and equipment scaled by assets; and net operating loss carryforward (NOLC) scaled by assets.
16) We estimated an additional model (untabulated) where we replaced the short-term debt and long-term debt ratios with the total debt ratio.
Although industry membership is important, the development and growth of the stock market did not affect the long-term debt ratios over the years.
How does the concentrated and nontradable (diffused and tradable) ownership by the State and legal-person shareholders (domestic individual investors) influence the listed Chinese firms' long-term debt ratios, respectively?
First, our data make it possible for us to directly test the monitoring role of various categories of ownership structures, with different monitoring abilities and legal rights, on sample firms' long-term debt ratios in an environment without a significant external corporate control market.

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