|
|
Short-Term Debt
|
|
Debt Ratio =
|
|
|
|
Long-Term Debt
|
Explanation of Debt Ratio:
The Debt Ratio measures the percentage of Short-Term Debt to
Long-Term Debt, a useful way to uncover a company's reliance on short term or
long term debt.
Importance of Debt Ratio:
If the Debt Ratio is increasing, this may be a sign the company has
not been able to secure long-term, lower interest financing, instead
having to secure short-term, higher interest short term financing. If the
Debt Ratio is decreasing, it is generally a positive sign, showing the company
may be paying off its Short-Term debt or possibly refinancing its Short-Term
Debt into Long-Term Debt. Refinancing is not a bad sign in itself, as
they may simply be trying to reduce their interest payments. The
Long-Term Debt needs to be monitored over time to see if they are reducing the
total value of the Long-Term Debt.
|