Long-Term Debt is the debt due more than 12 months in the future. The debt can be owed to banks or bondholders. Some companies issue bonds to investors and pay interest on the bonds.
The interest paid on companies debt is reflected in the income statement as interest expense. If a company has too much debt and it cannot serve the interest payment on the debt or repay the matured debt, the company risks bankruptcy. Peter Lynch famously said: A company that does not have debt cannot go bankrupt.
A companys long term debt may have different dates of maturity and interest rates, depending on the terms.
Usually a company issues long term debt to pay for its capital expenditures. Borrowing allows the company to do things that otherwise cannot be done with only the capital it has. But debt can be risky.
Buffett says that durable competitive advantages carry little to no LT debt because the company is so profitable that even expansions or acquisitions are self financed.
We are interested in long term debt load for the last ten years. If the ten yrs of operation show little to no long term debt, then the company has some kind of strong competitive advantage.
Warren Buffetts historic purchases indicate that on any given year, the company should have sufficient yearly net earnings to pay all long term within 3 or 4 year earnings period. (e.g. Coke + Moodys = 1yr)
Companies with enough earning power to pay long term debt in less than 3 or 4 years is a good candidate in our search for long term competitive advantage.
BUT, these companies are targets for leveraged buy outs, which saddles the business with long term debt.
If all else indicates the company has a moat, but it has ton of debt, a leveraged buyout may have created the debt. In these cases the companys bonds offer the better bet, in that the companys earnings power is focused on paying off the debt and not growth.
Important: little or no long term debt often means a Good Long Term Bet
Current Portion of Long-Term Debt
, Total Liabilities* All numbers are in millions except for per share data
Ebix, Inc. Annual Data
Ebix, Inc. Quarterly Data