Short definition: Long-term debt refers to loans or other debt obligations with maturities exceeding one year.
Explanation: These debts represent a company’s long-term financial commitments and are often used to finance significant investments, such as property, plant, equipment (PP&E), or acquisitions. Long-term debt is reported on a company’s balance sheet under non-current liabilities.
Example: Common examples of long-term debt include:
- Bonds payable: Long-term debt securities issued by a company to raise capital.
- Mortgages payable: Loans secured by real estate assets.
- Long-term bank loans: Loans from financial institutions with repayment terms exceeding one year.
- Capital lease obligations: Lease agreements that transfer ownership of an asset to the lessee at the end of the lease term.
Additional information (optional): Long-term debt is an essential component of a company’s capital structure, providing a source of financing for growth and expansion. However, excessive long-term debt can increase financial risk and limit a company’s flexibility.