Definition:

Change in Long-Term Debt refers to the difference in the amount of long-term debt a company has on its balance sheet from one period to the next. It indicates whether a company is increasing or decreasing its long-term borrowing.

Examples

If a company had $500,000 in long-term debt at the end of 2022 and $600,000 at the end of 2023, the change in long-term debt would be $100,000. This suggests the company has taken on additional debt.

Formula:

Change in Long-Term Debt = Long-Term Debt at End of Period - Long-Term Debt at Beginning of Period

How to use the metric:

Investors and analysts use this metric to assess a company's financial strategy and risk profile. An increase in long-term debt might indicate expansion plans or cash flow issues, while a decrease could suggest debt repayment or improved financial health.

Limitations:

This metric does not provide context about why the debt changed. It requires additional analysis to understand the reasons behind the increase or decrease, such as investment in growth, refinancing, or financial distress.

Applies to:

Industries with significant capital expenditure needs, such as manufacturing, utilities, and telecommunications, where long-term debt is often used to finance large projects.

Doesn't apply to:

Industries with minimal capital expenditure requirements, such as software or service-based industries, where long-term debt might not be a significant part of the financial strategy.

Summary:

Change in Long-Term Debt is a financial metric that helps assess a company's borrowing activities over a period. While useful for understanding changes in financial leverage, it requires additional context to interpret the implications fully.