As of 12/20/2024   Indus: 42,840 +498.02 +1.2%     Trans: 15,892 +32.54 +0.2%     Utils: 986 +14.76 +1.5%     Nasdaq: 19,573 +199.83 +1.0%     S&P 500: 5,931 +63.77 +1.1%	YTD  +13.7%   0.0%    +11.9%    +30.4%    +24.3%	Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,100 or 17,700 by 01/01/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/5/24

As of 12/20/2024   Indus: 42,840 +498.02 +1.2%     Trans: 15,892 +32.54 +0.2%     Utils: 986 +14.76 +1.5%     Nasdaq: 19,573 +199.83 +1.0%     S&P 500: 5,931 +63.77 +1.1%	YTD  +13.7%   0.0%    +11.9%    +30.4%    +24.3%
Targets    Overview: 12/12/2024     44,200 or 41,750 by 01/01/2025   16,100 or 17,700 by 01/01/2025   1,050 or 975 by 01/01/2025   20,500 or 19,300 by 01/01/2025   6,100 or 5,775 by 01/01/2025
Chart Pattern Indicator: on 12/5/24

Bulkowski on a Company's Long-Term Debt

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

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

$ $ $

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.

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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See Also

• Visit other fundamentals.
• These other research studies may interest you.
• 10-baggers. Find 10-baggers using fundamental analysis.
• Focus on fundamentals. Picking stocks using fundamental analysis.
• How to pick stocks, part 1.
• SEC Forms. What do they tell the trader or investor?
• Best buy days. Which day of the week is the best one to buy or sell?
• Best buy months. Can buying at the end of the worst performing month and selling at the best performing be profitable?
• Buy low or buy high? Buy near yearly low for larger gains, less risk.

Q: What should you give a man who has everything? A: A woman to show him how to work it.