Shown for the most recent quarter, the dollar value of a company's long-term debt and other liabilities. Other liabilities can be any items not already included in current liabilities or long-term debt. Examples would include minority interest, capital leases, preferred stock of a subsidiary, and deferred taxes. Long-term debt, as with other balance-sheet items, is shown in millions of dollars ($M) and is current as of the last day of the quarter.
Benefit
Long-term debt is one of the two main sources of long-term capital for a company, the other being shareholders’ equity. The mix of long-term debt and equity shows what capital structure a company’s management has chosen. Some firms prefer to rely solely on equity for long-term funds; others prefer to load up on debt in order to "leverage their profits. By taking on debt, management can increase returns to shareholders (the return on equity), but only at the price of increased risk. If a company can’t pay back its long-term debt when it matures, bankruptcy ensues.
Origin
This information is found in the liabilities area of the company’s most recent annual report or 10-Q report. This information is updated weekly.
For the Pros
Many growing companies will issue debt to help fund growth. That’s fine. What’s worrisome is when long-term debt grows sharply relative to shareholders’ equity, or as a percentage of total assets. That’s why ratios like debt/equity and equity/assets are so important. They measure the mix of a company’s capital structure between equity and debt. A company’s ability to shoulder hefty portions of long-term debt will depend on its industry. The steadier the business, the more ability a company has to meet the interest payments on the debt, and the more likely it is to be able to refinance long-term debt when it comes due. A utility or a food producer, because of their steady businesses, can afford to take on more debt than a machinery maker or a securities firm.
Tip
Use the following formula to find cheap stocks. If this number is high relative to the company’s market capitalization, the stock is cheap:
Current Assets Quarter 1 – Inventory Quarter 1 – Current Liabilities Quarter 1 – Long Term Debt Quarter 1