Long Term Debt
This is simply the debt or
obligations that the firm will have to pay over one year of time period. It can
be debenture, mortgage bonds, bank loan or any other obligations. An
organization must reveal its long-term debt along with its exact interest rate
and date of maturity in the special note section of balance sheet.
Importance of Long term debt
The amount of long term
debt is particularly important to know an organization’s ability to pay it out
in the long run and outperform its competitors. If an organization has much
long term debt, it is risky for the firm. But the company may even make a
proper plan for it. An organization also needs to have balance between short
and long term debt instruments. The amount of long term debt is a measure of an
organization’s leverage. Interest rates also have a great link with long term debt.
If the rate decrease, it is better to have more debt but if the rate increases,
it is not wise to have more of it.
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