Long Term Debt on Balance Sheet | Top Examples | Importance - YouTube

hello everyone hi welcome to the channel of WallStreetmojo watch the video till the end also if you are new

to the channel then you can subscribe us by clicking the bell ican friends today going to learn a concept that is

of which is known as your long-term debt in the balance sheet section what exactly does

long term that is all about let's learn that we can see it is a graph over here for help Pepsi co

rise from 2010 to 2018 numbers are going up me something that is leading to the

particular thing before that let's try and understand this topic in detail format so first and foremost

thing what exactly is your long term debt my question is what is long term debt on the

balance sheet long-term debt on the balance sheet are those loans and others liabilities which are not

to come within 1 year of a time spent Absolutely has to be greater than 1 year of

in general terms all the non current liabilities can be called as the long-term debts specially for

the purpose of finding the financial ratio them in that are used for analyzing financial health

long term debts are reported on the balance they are issued as a bond by the company to Finance

their expansion over the number of years to follow second they generally issue long term debt

on balance sheet bones which mature over many like the 10 year Bond or a 20 year Bond x**

30 year for example this is a very common practice specially in all the capital intensive industry

in the bonds are the most common type of long term that there is also something that is

called as the current portion of long-term debt so when NTT issues a debt sum portion of

long term debt need to be paid every year for period to the time the principal amount of the debt

has been fully paid back to the creditor during this even if the whole that is the long-term

debt in nature the portion of the principal that is required to be paid back within the

current year cannot be categorized in the long-term debts so therefore that portion is

written under the current liabilities as the current portion of long-term understand this

with the help of an example to show your long term debt example of Starbucks everyone was

busy with this particular company Starbucks now what you are going to know to hear from

the extract which are I am gone show you the extract say that is Starbucks has increased long term debts from 3923.26 from 3185.3 million in 2016 and

this is the basically the breakup of long-term debt breakup for example for starbucks different

notes that they have any should know what we know from the above case is that you know

the companies should various debts notes from 2018 to 2021, 2022, 2023, 2024, 2026 and 2045 so just example

of Starbucks that you know what exactly is done but we don't understand why they have

done why they must be going for this kind of long-term that's so much understand the

advantages of this see debts for the very first it gives a company and images to funds as

required amount capital without having to pay back to the lender in the near term

so the company does not want to access the full amount of the debt it can structure the debt

in a manner so as to receive know it enough parts over the period of time and when required

for any kind of that there is an interest payment ok involved apart for the payment

of the principal on now this interest payment is always current item in fact interest paid

during the period is reported on the income statement of that period as expense so since

it is an expense which is reported before that's it also reduces the taxable income

of the company and eventually the tax to be paid by the company he know that is not the

real advantage of taking the long-term debt on the balance sheet since in this case is increasing

its expense to decrease tax which Guddu by increasing any other expenses is is not compulsory interested

to save that I really not good not so flexible that so real advantage taking long term debts on the balance sheet the financial leverage that is provide it is company so leverage very important in the

real advantage of taking a long term debt on the balance sheet the financial leverage that it was provides

very important term in the financial dragon in the financial analysis of become an example

of long term debt what we note from Pepsi is long term debt on the balance sheet which

has increased over the past 10 years is that in its debt capital ratio of the debt to Capital

has also increase over the over the corresponding period this employee the Pepsi has been

relying on the death for the growth now in case of the oil and gas companies the long

from that you all and gas companies are like you know they are the capital intensive companies

that trees large want to the long-term debt on the balance sheet and B ratio of the graph

of u see Exxon mobile or let it be royal dutch or chevron for all this company that has no

increased by increasing their overall capitalisation ratio is increasing the long-term debt on

the balance sheet is primary due to a slowdown that was in the image in the commodity

secondary all prices and which had result introduced cash flow with stranger balance

sheet if you see the long-term debt rating I want to show you me let me put on that

this is the long-term debt rating this is investment grade non investment grade and

so and so investment grade for movies standard and poor & Fitch credit rating companies which

are really well known ones are there 3 all of this have their own different rating this

is just change in the sign of Some other way majorly they have the same notion the investment

grade in the non investment grade with the two times as we can see from this another

investment grade includes AAA for all if AA+ 1 in AA1 in standard poor and Fitch Plus and

moody's cases 1 and 20 ho were investment grade includes like CCC and so on and so

or d d for the default so negative the negative impact of the high locked long term debt in

all the issue in the debt improve absolutely the benefits described as discussed is to much injurious

to health of the company this is because no one must realise that you know what has been

borrowed must be paid back as simple as the and its impact on the future and apart from

the principal amount there would be and recurring interest cost as well so therefore debt the level

of the company must be and optimal level it was PM of optimal for the company and make

sure that you know the current potion that interest together don't eat up your cash flow

from the operations and one one thing you need to remember that if a company issues

equity it is not compulsion to pay the dividends but if it issues that then the interest payment

is absolutely mentari the long-term debt it is really very important I mean no 1 notes

for the investors as known as an investor it is advisable to keep watch on the debt

to equity ratio this is must and other debt related ratios and indicators as an investor

was also be attentive to any change or restructuring of these companies that no second and investor

must know the industry norms it absolutely must know the industry norms in the structure

have under which they operate generally the Asset heavy companies race more capital in the

form a debt of that Airlines Steel like plant and machinery for airplane engines and they are

built along to predict so in in the Asset heavy industries AC steel industry and Telecom

proposed that it is gently high levels are more a characteristics of mixture companies

which have a stable cash flow and as compared to the start of early stage companies this

because another later preferred not to reach that tracks differential charges including

the interest so that's it for now for the long term that so that's it for this particular

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