rows Navigate Study Guide
Long-Term Debt
This article will explain longterm debt. The overview provides an introduction
to the most common types of longterm debt and longterm debt lenders. This
article will also d
...
rows Navigate Study Guide
Long-Term Debt
This article will explain longterm debt. The overview provides an introduction
to the most common types of longterm debt and longterm debt lenders. This
article will also describe how investors and creditors can determine a
company's longterm debt by using mathematical formulas and by examining
a company's balance sheet. In addition, the reasons why creditors and
investors pay close attention to a company's longterm debt obligations are
explained, as are the reasons why companies choose to use longterm debt to
pay for their business growth objectives. Also, explanations of corporate
financial analyses in which longterm debt is an important issue, such as
identifying profitable borrowing, reading balance sheets and comparing the
financial positions of various companies based on their assets and debt
obligations are included to help illustrate how longterm debt factors into
common corporate finance considerations.
Keywords Bonds; Debentures; Debt; Equity; Loan; Inflation; Interest Rate;
Investment; Term
Finance: LongTerm Debt
Overview
There are many ways that companies finance, or pay for, their costs of doing
business. Successful businesses earn profits that are reinvested back into the
company to pay for research and development or other expansion efforts to
further grow the business. However, there are many instances in which a
company's earnings are not sufficient to cover its costs and growth objectives.
For instance, young companies or companies that are struggling to stay afloat
financially may not generate enough profit to cover all of their internal costs
as well as the costs of growing and expanding. Even strong, stable companies
may need to make significant purchases — such as equipment, building space
or even the acquisition of another company — to continue to grow and remain
competitive, and these costs may exceed the amount of liquid assets a
company has on hand. And even after years of successful growth, a company
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