Definition of Long-term debt/capitalization

Long-term debt/capitalization

Indicator of financial leverage. Shows long-term debt as a proportion of the
capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and
common stockholder equity.

Capitalization

The debt and/or equity mix that fund a firm's assets.

Capitalization method

A method of constructing a replicating portfolio in which the manager purchases a
number of the largest-capitalized names in the index stock in proportion to their capitalization.

Capitalization ratios

Also called financial leverage ratios, these ratios compare debt to total capitalization
and thus reflect the extent to which a corporation is trading on its equity. capitalization ratios can be
interpreted only in the context of the stability of industry and company earnings and cash flow.

Capitalization table

A table showing the capitalization of a firm, which typically includes the amount of
capital obtained from each source - long-term debt and common equity - and the respective capitalization
ratios.

Coefficient of determination

A measure of the goodness of fit of the relationship between the dependent and
independent variables in a regression analysis; for instance, the percentage of variation in the return of an
asset explained by the market portfolio return.

Debt/equity ratio

Indicator of financial leverage. Compares assets provided by creditors to assets provided
by shareholders. Determined by dividing long-term debt by common stockholder equity.

Debt

Money borrowed.

Debt capacity

Ability to borrow. The amount a firm can borrow up to the point where the firm value no
longer increases.

Debt displacement

The amount of borrowing that leasing displaces. Firms that do a lot of leasing will be
forced to cut back on borrowing.

Debt instrument

An asset requiring fixed dollar payments, such as a government or corporate bond.

Debt leverage

The amplification of the return earned on equity when an investment or firm is financed
partially with borrowed money.

Debt limitation

A bond covenant that restricts in some way the firm's ability to incur additional indebtedness.

Debt market

The market for trading debt instruments.

Debt ratio

Total debt divided by total assets.

Debt relief

Reducing the principal and/or interest payments on LDC loans.

Debt securities

IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
other instruments.

Debt service

Interest payment plus repayments of principal to creditors, that is, retirement of debt.

Debt service parity approach

An analysis wherein the alternatives under consideration will provide the firm
with the exact same schedule of after-tax debt payments (including both interest and principal).

Debt-service coverage ratio

Earnings before interest and income taxes plus one-third rental charges, divided
by interest expense plus one-third rental charges plus the quantity of principal repayments divided by one
minus the tax rate.

Debt swap

A set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank
debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local
equity.

Debtor in possession

A firm that is continuing to operate under Chapter 11 bankruptcy process.

Debtor-in-possession financing

New debt obtained by a firm during the Chapter 11 bankruptcy process.

Deterministic models

Liability-matching models that assume that the liability payments and the asset cash
flows are known with certainty. Related: Compare stochastic models

Disintermediation

Withdrawal of funds from a financial institution in order to invest them directly.

Euro-medium term note (Euro-MTN)

A non-underwritten Euronote issued directly to the market. Euro-
MTNs are offered continuously rather than all at once as a bond issue is. Most Euro-MTN maturities are
under five years.

Financial intermediaries

Institutions that provide the market function of matching borrowers and lenders or
traders.

Firm's net value of debt

Total firm value minus total firm debt.

Funded debt

debt maturing after more than one year.

Interest rate on debt

The firm's cost of debt capital.

Intermarket sector

spread The spread between the interest rate offered in two sectors of the bond market for
issues of the same maturity.

Intermarket spread swaps

An exchange of one bond for another based on the manager's projection of a
realignment of spreads between sectors of the bond market.

Intermediate-term

Typically 1-10 years.

Intermediation

Investment through a financial institution. Related: disintermediation.

Junior debt (subordinate debt)

debt whose holders have a claim on the firm's assets only after senior
debtholder's claims have been satisfied. Subordinated debt.

Liquidity theory of the term structure

A biased expectations theory that asserts that the implied forward
rates will not be a pure estimate of the market's expectations of future interest rates because they embody a
liquidity premium.

Long

One who has bought a contract(s) to establish a market position and who has not yet closed out this
position through an offsetting sale; the opposite of short.

Long bonds

Bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.

Long coupons

1) Bonds or notes with a long current maturity.
2) A bond on which one of the coupon periods, usually the first, is longer than the other periods or the standard period.

Long hedge

The purchase of a futures contract(s) in anticipation of actual purchases in the cash market. Used
by processors or exporters as protection against an advance in the cash price. Related: Hedge, short hedge

Long position

An options position where a person has executed one or more option trades where the net
result is that they are an "owner" or holder of options (i. e. the number of contracts bought exceeds the
number of contracts sold).
Occurs when an individual owns securities. An owner of 1,000 shares of stock is said to be "long the stock."
Related: Short position

Long run

A period of time in which all costs are variable; greater than one year.
long straddle A straddle in which a long position is taken in both a put and call option.

Long-term

In accounting information, one year or greater.

Long-term assets

Value of property, equipment and other capital assets minus the depreciation. This is an
entry in the bookkeeping records of a company, usually on a "cost" basis and thus does not necessarily reflect
the market value of the assets.

Long-term debt

An obligation having a maturity of more than one year from the date it was issued. Also
called funded debt.

Long-term debt ratio

The ratio of long-term debt to total capitalization.

Long-term financial plan

Financial plan covering two or more years of future operations.

Long-term liabilities

Amount owed for leases, bond repayment and other items due after 1 year.

Long-term debt to equity ratio

A capitalization ratio comparing long-term debt to shareholders' equity.

Long bonds

Bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.

Long coupons

1) Bonds or notes with a long current maturity.
2) A bond on which one of the coupon
periods, usually the first, is longer than the other periods or the standard period.

Long run

A period of time in which all costs are variable; greater than one year.

Long straddle

A straddle in which a long position is taken in both a put and call option.

Market capitalization

The total dollar value of all outstanding shares. Computed as shares times current
market price. It is a measure of corporate size.

Market capitalization rate

Expected return on a security. The market-consensus estimate of the appropriate
discount rate for a firm's cash flows.

Medium-term note

A corporate debt instrument that is continuously offered to investors over a period of
time by an agent of the issuer. Investors can select from the following maturity bands: 9 months to 1 year,
more than 1 year to 18 months, more than 18 months to 2 years, etc., up to 30 years.

Original issue discount debt (OID debt)

debt that is initially offered at a price below par.

Other long term liabilities

Value of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more than 1 year.

Secured debt

debt that, in the event of default, has first claim on specified assets.

Senior debt

debt that, in the event of bankruptcy, must be repaid before subordinated debt receives any payment.

Short-term financial plan

A financial plan that covers the coming fiscal year.

Short-term investment services

Services that assist firms in making short-term investments.

Short-term solvency ratios

Ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.

Short-term tax exempts

Short-term securities issued by states, municipalities, local housing agencies, and
urban renewal agencies.

Structured debt

debt that has been customized for the buyer, often by incorporating unusual options.

Subordinated debt

debt over which senior debt takes priority. In the event of bankruptcy, subordinated
debtholders receive payment only after senior debt claims are paid in full.

Term bonds

Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is
payable at maturity. Related: serial bonds

Term Fed Funds

Fed Funds sold for a period of time longer than overnight.

Term life insurance

A contract that provides a death benefit but no cash build-up or investment component.
The premium remains constant only for a specified term of years, and the policy is usually renewable at the
end of each term.

Term loan

A bank loan, typically with a floating interest rate, for a specified amount that matures in between
one and ten years and requires a specified repayment schedule.

Term insurance

Provides a death benefit only, no build-up of cash value.

Term repo

A repurchase agreement with a term of more than one day.
term structure of interest rates
Relationship between interest rates on bonds of different maturities usually
depicted in the form of a graph often depicted as a yield curve. Harvey shows that inverted term structures
(long rates below short rates) have preceded every recession over the past 30 years.

Term to maturity

The time remaining on a bond's life, or the date on which the debt will cease to exist and
the borrower will have completely paid off the amount borrowed. See: Maturity.

Term premiums

Excess of the yields to maturity on long-term bonds over those of short-term bonds.

Term trust

A closed-end fund that has a fixed termination or maturity date.

Terminal value

The value of a bond at maturity, typically its par value, or the value of an asset (or an entire
firm) on some specified future valuation date.

Terms of sale

Conditions on which a firm proposes to sell its goods services for cash or credit.

Terms of trade

The weighted average of a nation's export prices relative to its import prices.

Total debt to equity ratio

A capitalization ratio comparing current liabilities plus long-term debt to
shareholders' equity.

Trade debt

Accounts payable.

Unfunded debt

debt maturing within one year (short-term debt). See: funded debt.

Unsecured debt

debt that does not identify specific assets that can be taken over by the debtholder in case of default.

LONG-TERM LIABILITIES

Bills that are payable in more than one year, such as a mortgage or bonds.

RATIO OF DEBT TO STOCKHOLDERS’ EQUITY

A ratio that shows which group—creditors or stockholders—has the biggest stake in or the most control of a company:
(Total liabilities) / (Stockholders’ equity)

Debt

Borrowings from financiers.

Debtors

Sales to customers who have bought goods or services on credit but who have not yet paid their debt.

Long-term liabilities

Amounts owing after more than one year.

Bad debts

The amount of accounts receivable that is not expected to be collected.

bad debts

Refers to accounts receivable from credit sales to customers
that a business will not be able to collect (or not collect in full). In hindsight,
the business shouldn’t have extended credit to these particular
customers. Since these amounts owed to the business will not be collected,
they are written off. The accounts receivable asset account is
decreased by the estimated amount of uncollectible receivables, and the
bad debts expense account is increased this amount. These write-offs
can be done by the direct write-off method, which means that no
expense is recorded until specific accounts receivable are identified as
uncollectible. Or the allowance method can be used, which is based on
an estimated percent of bad debts from credit sales during the period.
Under this method, a contra asset account is created (called allowance
for bad debts) and the balance of this account is deducted from the
accounts receivable asset account.

capital structure, or capitalization

terms that refer to the combination of
capital sources that a business has tapped for investing in its assets—in
particular, the mix of its interest-bearing debt and its owners’ equity. In a
more sweeping sense, the terms also include appendages and other features
of the basic debt and equity instruments of a business. Such things
as stock options, stock warrants, and convertible features of preferred
stock and notes payable are included in the more inclusive sense of the
terms, as well as any debt-based and equity-based financial derivatives
issued by the business.

capitalization of costs

When a cost is recorded originally as an increase
to an asset account, it is said to be capitalized. This means that the outlay
is treated as a capital expenditure, which becomes part of the total
cost basis of the asset. The alternative is to record the cost as an expense
immediately in the period the cost is incurred. Capitalized costs refer
mainly to costs that are recorded in the long-term operating assets of a
business, such as buildings, machines, equipment, tools, and so on.

debt-to-equity ratio

A widely used financial statement ratio to assess the
overall debt load of a business and its capital structure, it equals total liabilities
divided by total owners’ equity. Both numbers for this ratio are
taken from a business’s latest balance sheet. There is no standard, or
generally agreed on, maximum ratio, such as 1:1 or 2:1. Every industry
is different in this regard. Some businesses, such as financial institutions,
have very high debt-to-equity ratios. In contrast, many businesses
use very little debt relative to their owners’ equity.

market capitalization, or market cap

Current market value per share of
capital stock multiplied by the total number of capital stock shares outstanding
of a publicly owned business. This value often differs widely from
the book value of owners’ equity reported in a business’s balance sheet.

Cost of Debt

The cost of debt (bonds, loans, etc.) that a company is charged for
borrowing funds. A component of the cost of capital.

Debt Ratio

The percentage of debt that is used in the total capitalization of a
company. It is calculated by dividing the total book value of the
debt by the book value of all assets.

Total Debt to Total Assets Ratio

See debt ratio

coefficient of determination

a measure of dispersion that
indicates the “goodness of fit” of the actual observations
to the least squares regression line; indicates what proportion
of the total variation in y is explained by the regression model

predetermined overhead rate

an estimated constant charge per unit of activity used to assign overhead cost to production or services of the period; it is calculated by dividing total budgeted annual overhead at a selected level of volume or activity by that selected measure of volume or activity; it is also the standard overhead application rate

Long position

Outright ownership of a security or financial instrument. The
owner expects the price to rise in order to make a profit on some future sale.

Long rate

The yield on a zero-coupon Treasury bond.

Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit.