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.
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References in periodicals archive ?
Additionally, studies on the capital structure of CEE transition economies report very low long-term debt ratios, but these have been growing over time (Peev & Yurtoglu, 2007).
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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.
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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.
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To test the relevant theories of debt maturity structure suggested in the literature, we examine the effect of six explanatory variables on long-term debt ratio which is calculated as a ratio of debt maturing in more than year divided by total debt.
Although industry membership is important, the development and growth of the stock market did not affect the long-term debt ratios over the years.
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