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What is Funded Debt?

Gerelyn Terzo
By
Updated May 16, 2024
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Funded debt represents the amount of long-term debt that a company carries on its balance sheet. It refers to bonds or other debt instruments that will mature in more than one calendar or fiscal year's time. Unfunded debt is the alternative, and represents loans that will mature in less than one year. A debtor is obligated to make interest payments on debt to its lenders over the term of the loan. Excess funded debt on a company's balance sheet can inhibit that entity's growth and debt capacity or its ability to obtain future loans.

Long-term debt can be measured in a variety of ways, one of which is a ratio comparing funded debt to capitalization or financial structure. This is a measure of a company's long-term obligations in comparison with shareholder equity ownership. To measure a company's capitalization ratio, long-term debt is divided by the sum of long-term debt and shareholder equity. The result is multiplied by 100 to obtain a percentage that represents how much of a company's total financial structure is because of debt.

A company's funded debt-to-equity ratio represents its long-term debt in relation to its equity. It is an equation that divides a company's funded debt by its total assets. The result multiplied by 100 is a percentage that represents its funded debt ratio. Based on certain parameters such as the industry in which a company operates, the criteria for a healthy ratio will vary. A low percentage represents a stable balance sheet and presents options on how to deploy future capital.

A high level of funded debt compared to equity demonstrates a dependence on debt to fund a company's long-term operations, and that could restrict future growth and lead to shareholder disapproval. While some debt on a balance sheet might be necessary, too much of it could be especially damaging during challenging economic times, because the company is obligated to make interest payments to its creditors. It also could limit a company's access to more lending at favorable rates.

There are various types of indebtedness, including long-term debt, short-term debt and operational liabilities, all of which are categorized separately on a company's balance sheet. When addressing a company's debt, these loan obligations might be characterized in one of several ways by financial analysts. It is the job of analysts to research, analyze and rate companies based on criteria that include debt and equity.

An analyst who takes a liberal view to debt refers only to a company's funded debt. A more moderate opinion addresses both long- and short-term obligations. Analysts who take a conservative view of a company's debt consider its long-term and short-term obligations, in addition to deferred taxes and forthcoming retirement benefits to employees.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Gerelyn Terzo
By Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in Mass Communication/Media Studies, she crafts compelling content for multiple publications, showcasing her deep understanding of various industries and her ability to effectively communicate complex topics to target audiences.
Discussion Comments
By Viranty — On Feb 20, 2014
@RoyalSpyder - As of now, the best thing for you to do would be to just tell them the truth. Even though you have to pay what you owe, they aren't the ruthless monsters most people make them out to be. They're understanding, they''ll work with you, and they'll even give you an extension. I graduated from college a few years ago, and have almost paid all of my student loans. When I was lacking a job a while back, I called them and explained about the situation. They were pretty understanding and even gave me a three month extension. No one likes to pay back loans, but they make it quite an easy process.
By RoyalSpyder — On Feb 19, 2014

Does anyone know how I'm supposed to pay back my student loans? It's been six months since I graduated, but I don't have a job yet. I keep receiving all of these letters in which they're telling me how much money I owe. I know I'm supposed to pay them, but I can't at the moment. Does anyone have some advice?

By Chmander — On Feb 18, 2014

No matter the form of debt, it's always a good idea to take care of the money that you owe. If you procrastinate, it can lead to some serious consequences, and the IRS may even come after you. I'm not trying to scare anyone, but it's true.

Gerelyn Terzo
Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in...
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