DEBT TO TOTAL CAPTIALIZATION RATIO
Debt to
total capitalization, also
known as the Long-Term
Debt To Total Capitalization
Ratio - A
ratio that measures the
financial leverage of a
firm. The ratio is
calculated by dividing
long-term debt by the
amount of capital
available (both long
term debt and
stockholders' equity).
The Long-Term Debt To
Capitalization Ratio has
the same objective as
the
debt to equity
ratio.
This ratio
identifies the amount of
long term funds supplied
by creditors, thus
giving an investor the
amount of leverage
utilized by a specific
company and provides a
quantitative analysis of
the company's risk
exposure. Generally,
companies that finance a
greater portion of their
capital via debt are
considered riskier than
those with lower
leverage ratios
The calculation
for long-term debt to
total capitalization is
as follows:
Long-Term Debt To
Capitalization Ratio =
Long-term Debt/Long-term
debt + Stockholder's
Equity
Example:
Amazon.Com
PERIOD ENDING
31-Dec-08
31-Dec-07
31-Dec-06
Total Current
Liabilities
4,746
3,714
2,532
Long
Term Debt
533
1,282
1,267
Other Liabilities
363
292
133
Total Liabilities
5,642
5,288
3,932
Total
Stockholder Equity
2,672
1,197
431
Long Term
Debt to Total
Capitalization Ratio
16.6%
51.7%
74.6%
Long Term
Debt to Total
Capitalization
533 / 3,205
1,282 / 2,479
1,267 / 1,698
I believe this is one of the
most important metrics to
measure and manage as you
create strategic plans.