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Calculate long-term debt relative to equity and compare it with total debt to equity. Work through current maturities, lease treatment, the balance-sheet reconciliation and changes caused by the equity base.
The LT debt equity ratio divides defined long-term debt by shareholders' equity and shows long-term borrowing relative to the book capital base. For the main calculation here, LT debt means noncurrent interest-bearing borrowings, with current maturities and lease liabilities excluded. Compare that result with total debt to equity to see how much the maturity definition changes the answer.
LT debt equity ratio = Defined long-term debt / Shareholders' equity
The abbreviation LT means long term. The result can be expressed as a multiple or a percentage; this article uses multiples rounded to two decimal places unless a table says otherwise.
The SEC's guide to financial statements explains that assets equal liabilities plus shareholders' equity and that the balance sheet describes a point in time. Accordingly, use debt and equity from the same close, entity and consolidation perimeter.
Equity is the book balance, not the company's stock-market value. If the analysis covers a consolidated group, align consolidated debt with the chosen equity scope and identify noncontrolling interests where applicable. Parent-only equity against group borrowing is an inconsistent comparison.
Long-term debt has two common analytical readings. Noncurrent borrowings exclude current maturities; outstanding borrowings originally issued long term include them. Neither label should be left implicit. The separate long-term debt guide explains the underlying category, while this page focuses on the leverage calculation.
Bring the closing balance sheet, borrowing schedule and equity rollforward. Keep each loan's carrying amount and classification, and separate the current portion from the noncurrent portion. A total loan balance followed by its current and noncurrent components is a presentation, not three amounts to add.
Record at least the following fields:
| Field | Why it matters |
|---|---|
| Entity and reporting date | Align the numerator and denominator |
| Currency | Prevent combining different reporting currencies |
| Borrowing account and instrument | Distinguish loans and bonds from other liabilities |
| Carrying amount | Reconcile to the balance sheet |
| Current/noncurrent classification | Construct the chosen LT scope |
| Lease category | Apply the documented lease convention |
| Equity account and balance | Rebuild the chosen book equity denominator |
This example excludes finance and operating leases from defined debt. That is a disclosed borrowing-only policy. FASB's Topic 842 update describes lease-asset and lease-liability recognition and distinguishes finance from operating leases, so lease categories should remain separately identifiable.
If a lender includes finance leases, use the lender's definition for its covenant calculation. The general ratio here does not override an agreement or establish covenant compliance.
An illustrative US packaging company has the following balances at September 30, 2026. Amounts are USD; the example contains finance leases and no operating lease liabilities.
| Balance-sheet row | Closing balance (USD) | Treatment |
|---|---|---|
| Total assets | 2,400,000 | Reconciliation check |
| Noncurrent term borrowing | 750,000 | Main LT numerator |
| Current maturities of term borrowing | 150,000 | Outside main LT numerator |
| Short-term bank borrowing | 100,000 | Outside main LT numerator |
| Current finance lease liabilities | 20,000 | Excluded by policy |
| Noncurrent finance lease liabilities | 80,000 | Excluded by policy |
| Other nonborrowed liabilities | 400,000 | Excluded from debt |
| Total liabilities | 1,500,000 | |
| Shareholders' equity | 900,000 | Denominator |
| Liabilities and equity | 2,400,000 | Reconciliation check |
Work the long-term and total measures from the same rows:
| Step | Calculation | Result: amounts (USD), ratios as shown |
|---|---|---|
| LT debt / equity, noncurrent scope | 750,000 / 900,000 | 0.83 times |
| Term borrowing including current maturities | 750,000 + 150,000 | 900,000 |
| Term borrowing including current maturities / equity | 900,000 / 900,000 | 1.00 times |
| Total borrowing | 750,000 + 150,000 + 100,000 | 1,000,000 |
| Total borrowing / equity | 1,000,000 / 900,000 | 1.11 times |
The main LT ratio says noncurrent borrowing is smaller than book equity. The total ratio says all defined borrowing exceeds equity. Both are correct, because the numerator differs.
Including noncurrent finance lease liabilities changes the main numerator to $830,000, producing 0.92 times. Including all finance lease liabilities in total debt gives $1,100,000 divided by $900,000, or 1.22 times. Keep these lease-inclusive variants separately labeled.
For the broader borrowing ratio, see debt to equity. If the question is debt relative to the asset base, use long-term debt to assets.
The balance sheet balances: $1,500,000 of liabilities plus $900,000 of equity equals $2,400,000 of assets. Borrowing of $1,000,000 plus lease liabilities of $100,000 and other liabilities of $400,000 equals the same $1,500,000 liability total.
The maturity bridge is equally important. Noncurrent term borrowing of $750,000 plus current maturities of $150,000 equals total term borrowing of $900,000. Adding $100,000 of short-term borrowing gives the $1,000,000 total-debt numerator. Tie those amounts to the schedule's carrying values rather than adding a face-value total without explanation.
The equity denominator must also tie to the approved statement. Use the equity rollforward to explain earnings, distributions, contributions, repurchases and other recorded movements. A debt ratio can change entirely through equity even when no borrowing moves.
For a group comparison, reconcile consolidation eliminations before dividing group debt by group equity. Intercompany borrowing should not survive in consolidated debt when the corresponding intercompany balance is eliminated.
First, consider a maturity reclassification only. Move $150,000 from noncurrent term borrowing into current maturities, keeping equity and all other balances unchanged.
| Measure | Original close: amounts (USD), ratios as shown | After reclassification: amounts (USD), ratios as shown |
|---|---|---|
| Noncurrent term borrowing (USD) | 750,000 | 600,000 |
| Current maturities (USD) | 150,000 | 300,000 |
| Short-term borrowing (USD) | 100,000 | 100,000 |
| Total borrowing (USD) | 1,000,000 | 1,000,000 |
| Equity (USD) | 900,000 | 900,000 |
| Noncurrent LT debt / equity | 0.83 times | 0.67 times |
| Total borrowing / equity | 1.11 times | 1.11 times |
The LT ratio falls while total borrowing does not. Treasury should explain the shorter maturity profile rather than reporting debt reduction.
Separately, return to the original balances and assume a $300,000 operating loss paid entirely in cash, with debt and other liabilities unchanged. Assume the original total assets included cash of $500,000; the rest of the asset base stays unchanged.
| Measure | Original close: amounts (USD), ratios as shown | After cash loss: amounts (USD), ratios as shown |
|---|---|---|
| Cash | 500,000 | 200,000 |
| Other assets | 1,900,000 | 1,900,000 |
| Total assets | 2,400,000 | 2,100,000 |
| Noncurrent term borrowing | 750,000 | 750,000 |
| Current maturities | 150,000 | 150,000 |
| Short-term borrowing | 100,000 | 100,000 |
| Total borrowing | 1,000,000 | 1,000,000 |
| Total liabilities | 1,500,000 | 1,500,000 |
| Shareholders' equity | 900,000 | 600,000 |
| Noncurrent LT debt / equity | 0.83 times | 1.25 times |
| Total borrowing / equity | 1.11 times | 1.67 times |
The loss reduces cash and equity by the same $300,000, keeping assets equal to liabilities plus equity. The main LT ratio rises to 1.25 times and total debt to equity rises to 1.67 times, rounded as before. Those results follow from dividing $750,000 and $1,000,000 by $600,000. The driver is erosion of the denominator.
These checks also explain why equity context matters. The equity ratio looks at book equity relative to assets rather than debt relative to equity.
Bring a sample of your own balance sheet, debt maturity schedule and equity rollforward, with current maturities and leases identified. Covirage maps the columns, its tools compute and check the ratios using your supplied classifications, and the external AI model explains the differences with every figure traced to its rows. Create a free Covirage account, which takes about a minute, then set up your business and bring your file.
See Covirage for finance teams for the reporting context.
No. Total debt includes borrowing across maturities. An LT measure uses a specified long-term subset, which may exclude current maturities as well as short-term borrowing. Reconcile those excluded balances before comparing the ratios or attributing a change to repayment.
Positive debt divided by negative equity produces a negative ratio, but that does not indicate low leverage. Flag the result as unsuitable for ordinary positive-equity comparisons and explain the equity deficit. With zero equity, the ratio is undefined.
This balance-sheet measure uses book shareholders' equity from the same statement as the debt balance. A market-value version answers a different question and is unavailable for many private entities. Do not mix market and book denominators within a company comparison.
There is no universal good level. Compare a company's own trend with similarly financed businesses using matched accounting definitions, dates and equity scopes. Then review maturity concentration and cash generation; the ratio alone cannot establish whether borrowing is affordable.