Direct Answer
Long-term debt is borrowings a company is not required to repay within the next twelve months, reported as a non-current liability on the balance sheet. It typically includes bonds, term loans, and other financing due beyond one year, and it's combined with short-term debt to calculate total debt, a key input to leverage ratios like debt-to-equity and debt-to-EBITDA.
Key Takeaways
- Long-term debt is the portion of a company's borrowings not due within the next twelve months, reported as a non-current liability.
- It typically includes bonds, term loans, and other financing instruments due beyond one year.
- Adding long-term debt to short-term debt produces total debt, a common input to leverage ratios such as debt-to-equity and debt-to-EBITDA.
- The current portion of a long-term borrowing (the piece due within twelve months) is reclassified into current liabilities, not left inside long-term debt.
- The appropriate level of long-term debt can vary widely by industry, capital intensity, and interest rate environment, there is no single universal threshold.
- The maturity schedule and interest terms disclosed in the debt footnote matter as much as the headline total.
What Is Long-Term Debt?
Long-term debt is borrowings a company is not required to repay within the next twelve months, reported as a non-current liability on the balance sheet. It typically includes bonds, term loans, and other financing due beyond one year. This distinguishes it from short-term debt, which covers borrowings due within the coming year and is reported in current liabilities.
The twelve-month cutoff is the organizing principle behind the entire current/non-current split on a classified balance sheet: an obligation's classification depends on when it comes due relative to the reporting date, not on the type of instrument or the original loan term. A ten-year bond issued nine years ago, for example, still sits in long-term debt as long as more than twelve months remain before its maturity date.
| Item | Where it's reported | What it typically includes |
|---|---|---|
| Short-term debt | Current liabilities | Borrowings due within the next twelve months, including the current portion of long-term debt |
| Long-term debt | Non-current liabilities | Bonds, term loans, and other financing due beyond one year |
| Total debt | Not a single balance sheet line, a calculated sum | Short-term debt plus long-term debt |
How Long-Term Debt Is Reported and Combined Into Total Debt
On a classified balance sheet, liabilities are split between current liabilities (due within roughly a year) and long-term, or non-current, liabilities (due beyond that window). Long-term debt sits inside the non-current liabilities section, generally listed near other long-term obligations such as long-term lease liabilities or deferred tax liabilities.
As a long-term borrowing gets closer to its maturity date, the portion due within the next twelve months is reclassified out of long-term debt and into current liabilities, commonly labeled "current portion of long-term debt." This keeps the long-term debt balance representing only the truly non-current portion of the obligation at each reporting date.
Total debt is a calculated figure, not a single reported line item:
Total debt = short-term debt + long-term debt
Total debt is a key input to several commonly used leverage ratios, including:
- Debt-to-equity, total debt divided by shareholders' equity, comparing borrowed capital to the owners' claim on the business.
- Debt-to-EBITDA, total debt divided by earnings before interest, taxes, depreciation, and amortization, comparing borrowed capital to a measure of operating cash-generating capacity.
Analysts and data providers do not always define "total debt" identically, some include finance lease liabilities or exclude certain hybrid instruments, so the exact components behind a reported leverage ratio are worth confirming before comparing figures across companies or data sources.
Worked Hypothetical Example
Hypothetical example, for education only.
Consider a hypothetical company with the following balance sheet items at its most recent fiscal year-end:
| Balance sheet item | Amount |
|---|---|
| Short-term debt (including current portion of long-term debt) | $40 million |
| Long-term debt | $260 million |
| Shareholders' equity | $300 million |
| EBITDA (trailing twelve months) | $100 million |
Total debt = $40 million + $260 million = $300 million.
Debt-to-equity = $300 million ÷ $300 million = 1.0x. Borrowed capital equals the shareholders' equity claim on the business.
Debt-to-EBITDA = $300 million ÷ $100 million = 3.0x. Total debt is three times trailing EBITDA.
What the example means
The example illustrates how long-term debt feeds into total debt and, from there, into two commonly used leverage ratios. It does not claim that a 1.0x debt-to-equity ratio or a 3.0x debt-to-EBITDA ratio is inherently good or bad for any real company, that judgment depends on the industry, cash flow stability, and interest rate on the debt, among other factors.
Assumptions and limitations
- The example is hypothetical and uses simplified, round figures.
- It does not account for lease liabilities, preferred equity, or other items some data providers include in an expanded definition of debt or leverage.
- A single point-in-time snapshot cannot show how the debt load or the ratios have trended over time.
Why Long-Term Debt Matters for Leverage Analysis
Long-term debt is one of the two components of total debt, so it directly drives leverage ratios like debt-to-equity and debt-to-EBITDA that investors commonly use to gauge how much a company relies on borrowed capital. A rising long-term debt balance, holding equity or earnings constant, mechanically pushes these ratios higher.
What counts as an appropriate amount of long-term debt can vary substantially by industry and business model. Capital-intensive sectors such as utilities and telecommunications typically carry higher debt loads supported by steady, regulated cash flow, while asset-light software businesses commonly operate with little or no long-term debt. Because of this variation, long-term debt and the leverage ratios built from it are typically most useful when compared against a company's own history and against similarly structured peers, rather than judged against one universal threshold.
The composition of long-term debt matters alongside the total. Fixed-rate versus floating-rate debt, secured versus unsecured, and the maturity schedule all affect how exposed a company is to refinancing risk or rising interest rates, details disclosed in the debt footnote rather than the balance sheet total.
Limitations and Common Mistakes
| Mistake | Why it causes problems | Better practice |
|---|---|---|
| Treating long-term debt as the whole leverage picture | Total debt also includes short-term debt, and many companies carry meaningful lease or pension obligations that behave like debt but sit in separate line items. | Review long-term debt alongside short-term debt, lease liabilities, and other long-dated obligations before concluding on overall leverage. |
| Comparing long-term debt levels across unrelated industries | What is a normal long-term debt load can vary widely by capital intensity and cash flow stability, so a level that is conservative in one sector may be aggressive in another. | Compare against sector peers and the company's own multi-year history rather than a single fixed number. |
| Ignoring the maturity schedule | A large amount of long-term debt maturing within the next one to two years creates refinancing risk that the balance sheet total alone doesn't reveal. | Check the debt footnote's maturity schedule, not just the aggregate long-term debt figure. |
| Assuming every data provider defines total debt the same way | Some providers include finance lease liabilities or preferred stock in "total debt" while others don't, which can make leverage ratios look inconsistent across sources. | Confirm what components are included before comparing a leverage ratio calculated by one source against another. |
Frequently Asked Questions
What is long-term debt on a balance sheet?
Long-term debt is borrowings a company is not required to repay within the next twelve months, reported as a non-current liability on the balance sheet. It typically includes bonds, term loans, and other financing due beyond one year.
What is the difference between long-term debt and short-term debt?
Short-term debt is due within the next twelve months and sits in current liabilities. Long-term debt is not due within that window and sits in non-current liabilities. The current portion of a long-term borrowing is reclassified into short-term debt as it approaches its due date.
How is long-term debt used in leverage ratios?
Long-term debt is combined with short-term debt to calculate total debt, which is the numerator or a key input in leverage ratios such as debt-to-equity and debt-to-EBITDA. These ratios are commonly used to gauge how much a company relies on borrowed capital relative to equity or earnings.
Is long-term debt the same as total liabilities?
No. Long-term debt is only the non-current interest-bearing borrowings portion of the balance sheet. Total liabilities also include current liabilities, deferred tax liabilities, pension obligations, lease liabilities, and other non-debt obligations.
Is more long-term debt always a bad sign?
Not necessarily. The appropriate level of long-term debt can vary widely by industry, business model, and interest rate environment, so it is typically evaluated alongside cash flow, interest coverage, and maturity schedule rather than as a standalone number.
Where can long-term debt details be found in a company's filings?
The balance sheet reports the total long-term debt figure, while the debt footnote in the 10-K or 10-Q typically breaks it down by instrument, interest rate, and maturity schedule.
Why is long-term debt reported net of unamortised costs?
Issuance costs and any discount or premium are deducted from the face amount and amortised over the debt's life, so the balance sheet carrying amount differs from the principal owed at maturity. The footnote discloses both. Using the carrying amount as the repayment obligation understates what must eventually be repaid.
What determines whether debt is classified as long-term or current?
Maturity within a year moves it to current, and a covenant breach that makes debt callable on demand can also require current classification even when the stated maturity is distant. This reclassification is one of the visible consequences of a covenant issue. A sudden shift of long-term debt into current liabilities is worth investigating for that reason.
How does the composition of long-term debt matter beyond the total?
Bonds, term loans, and revolving borrowings carry different maturities, covenants, security, and refinancing characteristics, so the same total represents different risk depending on the mix. Bank debt typically carries maintenance covenants that bond debt does not. The footnote lists the instruments, which is where the composition becomes visible.