A company lists its long-term debt on its balance sheet under liabilities, usually under a subheading for long term liabilities.

Long-term debt

Any obligations that a company incurs for a period of time that extends beyond the current operating cycle or current year (ie, one year from the date the obligation was incurred) are considered long-term liabilities.

Long-term liabilities can be financing or operational. Financing liabilities are debt obligations produced when a company raises cash. These include convertible bondsnotes payable and bonds payable. Operating liabilities are obligations that a company incurs during the process of carrying out its normal business practices. Operating liabilities include capital leasing obligations and post-retirement benefit obligations to employees.

Both types of debt represent financial obligations that a company must meet in the future, although investors should look at the two separately. Financing obligations result from deliberate financing choices, providing insight into the company’s capital structure and indications of future earning potential.

Long term debt

Long term debt it is listed under long-term liabilities on a company’s balance sheet. Financial obligations that have a repayment period of more than one year are considered long-term debt. Debts that are due in the current year are known as short term/current long term debt. These obligations include things like long-term leases, traditional business financing loans, and company bond issues.

Financial statements

Financial statements record the various inflows and outflows of capital for a business. These documents effectively present financial data about a company and allow analysts and investors to assess a company’s overall profitability and financial health.

To maintain continuity, the financial statements are prepared in accordance with generally accepted accounting principles (GAAP). Among the various financial statements that a company regularly publishes are balance sheets, income statements, and cash flow statements.

Balance sheet

The balance sheet is the summary of a company’s liabilities, assets, and equity at a particular point in time. The three segments of balance sheet help investors understand the amount invested in the company by shareholders, along with the company’s current assets and liabilities.

There are a variety of accounts in each of the three segments, along with documentation of their respective values. The most important lines recorded on the balance sheet include cash, current assets, long-term assets, current liabilities, liabilities, long-term liabilities and equity.

Debt versus equity

A company’s long-term debt, combined with specified short-term debt and preferred and ordinary equity, forms its capital structure. Capital structure refers to a company’s use of various sources of financing to finance operations and growth.

Using debt as a source of financing is relatively less expensive than equity financing for two main reasons. First, debtors have a prior claim if a company goes bankrupt; thus, the debt is safer and generates a lower yield.

This effectively means a lower interest rate for the company than expected from total shareholder return (TSR) on equity. The second reason why debt is less expensive as a source of financing comes from the fact that interest payments are tax deductible, thus reducing the net cost of borrowing.