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# Long Term Debt to Capitalization Ratio | Formula | Calculator (Updated 2021)

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The L-T-C ratio is used to measure a companies ability to repay debt and this ratio can be used to estimate a company’s debt to equity ratio. Here is a formula to calculate L-T-C Ratio. L=amount of long term debt T=amount of total debt C=amount of total capital T/C=L/C

The most common measure of debt to capitalization is the debt-to-equity ratio, or D/E Ratio. This is calculated by dividing total debt by total equity. Using this ratio as a guideline, a company can choose what level of debt to issue to lower their D/E ratio. This can be useful for companies who are trying to raise funds to raise equity, or for companies who want to back away from debt. Read more about long-term debt to total capital ratio formula and let us know what you think.This is a detailed guide to calculating the long-term debt ratio, with detailed interpretation, examples and analysis. You will learn how to use the formula to determine a company’s ability to repay its debts.

## Definition – What is the ratio of long-term debt to capitalization?

The long term debt to capitalization ratio is another solvency ratio that can be used to assess the extent to which a company is using leverage to finance its core business.

This ratio is a variant of the traditional debt ratio; the only difference is that only the company’s free capital is taken into account, not its total equity.

This measure can be used to determine how effectively a company is using its leverage and can then be compared to other companies in the same industry to see who is performing better.

In general, companies with higher debt-to-equity ratios are more risky in the long run because they have a higher leverage structure.

Conversely, companies with lower ratios tend to finance their operations more with equity or capital.

The management of a company always has the choice between using debt and equity capital to finance its activities.

You can use equity, debt or both to raise capital, but it should be noted that the ultimate goal of using these approaches is a balanced capital structure.

With an optimal capital structure, a company can take full advantage of low-cost debt financing while avoiding the risk of potential default.

## Formula

The following equation can be used to calculate the ratio of a company’s long-term debt to its capitalization:

Long-term debt to capitalization ratio = long-term debt / (long-term debt + common shares + preferred shares)

All these figures can easily be found in the company’s balance sheet.

## Example

Let’s look at an example so you understand exactly how to find this ratio.

You’d like to s. B. Evaluate the capital structure of company A to determine how effectively management uses debt and equity to create shareholder value.

You have reviewed the company’s financial statements and found the following information:

• Long-term debt = \$1,250 million
• Common stock = \$450 million
• Preferred stock = \$125 million

Using the above formula, you can easily determine the ratio of total long-term debt to total capitalization of this company as follows:

As a college student, I found myself with a mountain of student loan debt. Since I was a beginner in the investment trade, I initially assumed that those loans would go to making me a more comfortable college student. However, when the recession hit, I was forced to drastically reduce my lifestyle. Luckily, my professors were able to accommodate my financial needs, but I still owed thousands of dollars in student loan debt. And although my financial situation has improved, I find myself having to make difficult choices every week on how much to spend on things I don’t need.. Read more about total debt to capitalization ratio and let us know what you think.{“@context”:”https://schema.org”,”@type”:”FAQPage”,”mainEntity”:[{“@type”:”Question”,”name”:”What is a good long term debt to capitalization ratio?”,”acceptedAnswer”:{“@type”:”Answer”,”text”:” A good long term debt to capitalization ratio is below 50%.”}},{“@type”:”Question”,”name”:”How do you calculate long term debt to capitalization?”,”acceptedAnswer”:{“@type”:”Answer”,”text”:” Long term debt to capitalization is calculated by dividing long term debt by total capitalization.”}},{“@type”:”Question”,”name”:”What is a good debt-to-capital ratio?”,”acceptedAnswer”:{“@type”:”Answer”,”text”:” A good debt-to-capital ratio is a measure of how much debt a company has compared to its total capitalization.”}}]}

#### What is a good long term debt to capitalization ratio?

A good long term debt to capitalization ratio is below 50%.

#### How do you calculate long term debt to capitalization?

Long term debt to capitalization is calculated by dividing long term debt by total capitalization.

#### What is a good debt-to-capital ratio?

A good debt-to-capital ratio is a measure of how much debt a company has compared to its total capitalization.