Long Term Debt Definition and Explanation

Our Financial Analysis Success Kit is Ready!

Click to take a closer look at the Financial Analysis Success Kit Click the button to learn more about the Financial Analysis Success Kit Click the button to learn more about the financial analysis success it

Why you should take a look at the Financial Analysis Success Kit:

We've combined all our highly popular financial analysis tools into one mega-financial-analysis-kit that will save you hundreds of dollars if purchased separately. The kit contains 9 files packed with the most important financial ratio analysis tools you can find to help rocket your way to mastering financial analysis. The kit includes:

  1. The eBook "Learn Ratio Analysis In Minutes"

  2. The Learn Financial Ratio Analysis Excel Spreadsheet (2 versions!)

  3. A BONUS...Our eBook of "Key Financial Statement Terms"

  4. Another HUGE BONUS...Five-Part Financial Ratio Cheat Sheet Series

The result? You get all these professionally created tools for a great low price.

Learn more on our product page:

Take a Look

Quick Definition

Company debt that takes more than one year to pay off.

[sc:kit03 ]

Explanation of Long Term Debt

Also called Long-Term Liabilities, or Non-Current Liabilities and listed on the Balance Sheet, this figure represents the company’s debt that will take more than one year to pay off. Examples of Long Term Debt includes mortgages, Lease Payments, pensions among others.

Importance of Long Term Debt

Long Term Debt is a factor for most companies, as most do not simply have the cash to purchase long term assets like buildings and expensive production equipment. These companies then have to acquire mortgages to pay for these big-ticket items, or lease them. As an incentive for employees to remain with the company for long periods of time, companies will offer pension plans to their employees. This continual liability is also considered to be long term.

Companies with low or no Long Term Debt may be considerably financially healthier than counterparts burdened under heavy Long Term Debt loads. However, a company who takes on Long Term Debt to purchase assets that in the long run become key to the growth of the company would in fact be favorable. So, finding out what comprises the Long Term Debt of a company is very important – there should be notes in the financial statement describing what makes up their Long Term Debt.

Short Term Debt are company debts that a company must pay within one year. Investors should keep an eye on both short term and long term company obligations.