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Li & Fung Ltd (OTCPK:LFUGF)
Long-Term Debt
$1,255 Mil (As of Jun. 2014)

Long-Term Debt is the debt due more than 12 months in the future. Li & Fung Ltd's long-term debt for the quarter that ended in Jun. 2014 was $1,255 Mil.

Warning Sign:

Li & Fung Ltd has been issuing new debt. Over the past 0.75 years, it issued USD146.069767442 million of debt. But overall, its debt level is acceptable.

Long-Term Debt to Total Assets is a measurement representing the percentage of a corporation's assets that are financed with loans and financial obligations lasting more than one year. The ratio provides a general measure of the financial position of a company, including its ability to meet financial requirements for outstanding loans. It is calculated as a company's long-term debt divide by its total assets. Li & Fung Ltd's long-term debt for the quarter that ended in Jun. 2014 was $1,255 Mil. Li & Fung Ltd's total assets for the quarter that ended in Jun. 2014 was $12,777 Mil. Li & Fung Ltd's long-term debt to total assets ratio for the quarter that ended in Jun. 2014 was 0.10.

Li & Fung Ltd's long-term debt to total assets ratio declined from Jun. 2013 (0.11) to Jun. 2014 (0.10). It may suggest that Li & Fung Ltd is progressively becoming less dependent on debt to grow their business.


Definition

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 company’s 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.


Explanation

Long-Term Debt to Total Assets is a measurement representing the percentage of a corporation's assets that are financed with loans and financial obligations lasting more than one year. The ratio provides a general measure of the financial position of a company, including its ability to meet financial requirements for outstanding loans. A year-over-year decrease in this metric would suggest the company is progressively becoming less dependent on debt to grow their business.

Li & Fung Ltd's Long-Term Debt to Total Asset Ratio for the quarter that ended in Jun. 2014 is calculated as:

Long-Term Debt to Total Assets (Q: Jun. 2014 )=Long-Term Debt (Q: Jun. 2014 )/Total Assets (Q: Jun. 2014 )
=1254.642/12776.899
=0.10

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

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 years of operation show little to no long term debt, then the company has some kind of strong competitive advantage.

Warren Buffett’s 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 + Moody’s = 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 company’s bonds offer the better bet, in that the company’s 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


Related Terms

Total Liabilities, Current Portion of Long-Term Debt


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Li & Fung Ltd Annual Data

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
Long-Term Debt 0006497438291,2571,2561,2551,255

Li & Fung Ltd Semi-Annual Data

Dec09Jun10Dec10Jun11Dec11Jun12Dec12Jun13Dec13Jun14
Long-Term Debt 8291,5451,2572,8501,2561,2561,2551,2551,2551,255
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