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Long-Term Debt

In: Quantitative Corporate Finance

Author

Listed:
  • John B. Guerard Jr.

    (McKinley Capital Management, LLC)

  • Anureet Saxena

    (McKinley Capital Mgmt, LLC)

  • Mustafa N. Gültekin

    (University of North Carolina Chapel Hill)

Abstract

Long-term debt is the term given to those obligations the firm does not have to pay for at least a year. They are also called funded debt or fixed liabilities. Items that may be classed as long-term debt are bonds, debentures, term loans, or, in small firms, mortgages on buildings. The portion of the long-term debt due within the current year is carried in the current liability section of the balance sheet. Firms in the United States issue far more debt than equity shares. In most years during the 1963–2003 period, firms have issued six to eight times more debt than equity. (Of course, most increase in equity is through retained earnings.) Issuing debt raises capital for firm growth and expansion without possibly lessening current stockholder control. The floatation costs are less on debt than on equity, and the cost of debt is less than the expected shareholder return on equity.

Suggested Citation

  • John B. Guerard Jr. & Anureet Saxena & Mustafa N. Gültekin, 2022. "Long-Term Debt," Springer Books, in: Quantitative Corporate Finance, edition 3, chapter 0, pages 181-214, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-87269-4_9
    DOI: 10.1007/978-3-030-87269-4_9
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