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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Long-Term Debt

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My book, Fundamental Analysis and Position TradingFundamental Analysis and Position Trading: Evolution of a Trader book., discusses long term debt starting on page 61. I show a picture of the book on the left.

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This page reviews a study concerning the stock performance of companies with and without long-term debt.

Long-Term Debt Summary

Value Line defines long-term debt as "the portion of borrowings (including bank notes, debentures, and capitalized leases) that will be due not in the current 12 months, but in future operating years."

I thought that debt was bad, that high levels risk ruining the company and no debt was preferred. Too high debt is detrimental, of course, but so is too little debt, according to this study. I found that companies that had long-term debt had stocks that performed better than those companies with no debt.

Long-Term Debt Methodology

I used the Value Line investment survey and typed in their long-term debt numbers to build a database of 178 stocks with data ranging from 12/30/1991 to 7/11/2008.

After completing the database, I logged the close-to-close price change from 1 to 5 years out, looking forward from the base year. The base year ranged from 1992 to 2006. Not all stocks covered the entire range. Years with no numbers were excluded. The price change measured from the close on the last trading day of each year. Years 2008 and later are not included since the year had not completed as of the time of this study.

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Long-Term Debt Results

The following table shows the stock performance companies with and without debt over time.

 1 yr2 yrs3 yrs4 years5 years
Debt12.2%12.9%13.5%14.9%16.2%
Samples1123980851719591
No debt10.6%11.4%12.3%11.1%10.3%
Samples935901857822788

For example, if companies had debt during year 0, they gained an average of 12.2% the following year. Companies with no debt showed stock prices rising 10.6%.

In each of the five years, companies with debt showed better stock performance over the coming one to five years than did those companies with no long-term debt. The reason for this, I believe, is leverage. Those companies with a modest (whatever that means) amount of debt put it to work to make more money. Their stock performance reflected that success by rising.

-- Thomas Bulkowski

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Q: What should you give a man who has everything? Q: A woman to show him how to work it.