How to Calculate a Company's Total Debt Using a Formula

Understanding your company’s total debt isn’t just about tracking liabilities; it’s about controlling the narrative of your financial stability. According to the U.S. Federal Reserve, nonfinancial corporate debt in the U.S. surpassed $13.741 trillion in 2024, marking an all-time high.
But how much of that debt is actually working for the companies, and how much is silently draining their future?

Total debt plays a pivotal role in shaping how your business is perceived by lenders assessing risk, investors evaluating long-term potential, and internal teams making informed financial decisions. It affects everything from credit approvals to budget allocation and strategic planning.

In this guide, you’ll learn how to calculate total debt, break it down into actionable insights, and understand why it’s a key indicator of financial control, not just financial obligation.

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What is Total Debt?

Total debt is the complete sum of a company's financial obligations—both short-term and long-term. It includes all loans, credit lines, bonds payable, lease obligations, and any outstanding interest owed. In simpler terms, total debt is everything a business owes to external parties, whether due next month or ten years from now.

Many businesses underestimate how layered their debt profile actually is. Beyond bank loans, debt can come in the form of unpaid invoices, long-term equipment leases, or revolving lines of credit. When these elements stack up without oversight, it can distort financial health and impact your ability to secure future funding.

Next, we'll discuss why knowing your total debt is vital for decision-making and its relation to key financial metrics like the debt-to-equity ratio.

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The Importance of Total Debt

Understanding your total debt helps gauge your company’s financial leverage and how much you're relying on borrowed funds to operate or grow. Lenders, investors, and internal decision-makers often look at your debt-to-equity ratio, which directly depends on total debt figures. This insight is crucial for:

• Assessing business solvency
• Preparing for audits or refinancing
• Determining realistic repayment timelines

With compliance requirements tightening, especially in light of updated regulations from the Fair Debt Collection Practices Act (FDCPA), businesses must keep precise track of debt categories to avoid reporting errors or reputation risks.

ProTip: Break down your total debt into categories—short-term, long-term, secured, and unsecured. This will make it easier to prioritize repayments, negotiate better terms, and spot early warning signs before debt becomes unmanageable.

With this in mind, it's time to explore the breakdown of current and long-term debt components and how identifying each category can aid in better financial management.

For support in tracking and managing debt, South East client services inc can assist in ensuring compliance and maintaining financial stability.

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Identifying Short-Term Debt Components (Excludes Non-Debt Liabilities)

Understanding the specific components of your company's current debt is essential for effective financial management. Current debt encompasses obligations due within the next 12 months. Key elements include:

• Short-Term Loans: These are borrowings that must be repaid within a year. Businesses often use short-term loans to finance immediate operational needs or manage cash flow gaps.​
• Current Portion of Long-Term Debt (CPLTD): This represents the segment of long-term obligations that are due within the current fiscal year. For instance, if a company has a 10-year loan, the amount due in the upcoming year is classified as CPLTD. ​
• Lines of Credit and Overdrafts: These are amounts drawn against pre-approved credit limits that are repayable on demand or within a short period. They provide flexibility but require careful monitoring to avoid overextension.​
• Accounts Payable: This includes outstanding invoices and payments owed to suppliers for goods and services received. Timely settlement is crucial to maintaining supplier relationships and avoiding late fees.​
• Accrued Expenses: These are expenses that have been incurred but not yet paid by the end of the accounting period, such as wages, interest, and utilities. They are recognized to reflect the company's financial position accurately.​
• Taxes Payable: This encompasses taxes owed to government authorities that are due within the year, including income tax, sales tax, and payroll taxes.​
• Dividends Payable: Amounts declared by the company's board of directors to be paid to shareholders but have not yet been distributed.​
• Unearned Revenue: Also known as deferred revenue, this represents payments received in advance for goods or services to be delivered in the future. It's considered a liability until the service is performed or the product is delivered.​
• Short-Term Lease Liabilities: Obligations arising from lease agreements that are due within the next 12 months.​

Note: While some items below are current liabilities, only interest-bearing obligations like short-term loans, lines of credit, and the current portion of long-term debt are considered part of “total debt” in financial ratio analysis. Items like accounts payable and accrued expenses are not included in total debt calculations as they do not involve borrowed funds.

The next section will examine long-term debt components, which play a critical role in shaping a company’s financial structure and future growth potential.

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Identifying Long-Term Debt Components

Understanding the components of long-term debt is crucial for effective financial management and strategic planning. Long-term debt encompasses financial obligations that are due beyond 12 months. Key components include:​

• Bonds Payable: These are debt securities issued by a company to raise capital, promising to repay the principal and interest at specified intervals. Bonds can be secured, backed by specific assets, or unsecured (debentures), relying solely on the issuer's creditworthiness. ​EBSCO
• Notes Payable: Formal written agreements in which a company commits to repay borrowed funds, typically with interest, over a period exceeding one year. These notes often arise from direct loans or purchases of goods and services. ​
• Leases Payable: Obligations under lease agreements for property or equipment that extend beyond a year. These are recorded as long-term liabilities, reflecting the company's commitment to make future lease payments. ​
• Loans Payable: Amounts borrowed from financial institutions or other lenders, with repayment terms extending beyond 12 months. This includes mortgages and other term loans secured for long-term financing needs. ​
• Debentures: A type of unsecured bond that is not backed by physical assets or collateral but instead relies on the issuer's general creditworthiness and reputation. 

Pro Tip: Manage your cash flow effectively by monitoring your long-term debt terms. If you need support, South East Client Services inc (SECS inc) specializes in debt collection and recovery, offering ethical, compliant solutions while protecting your reputation.

Following this, we’ll give you a practical example of how to calculate total debt and clearly break down each liability category.

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Calculation of Total Debt: A Practical Example

To accurately determine a company's total debt, it's essential to identify and sum up its short-term and long-term debt obligations as presented in the balance sheet.​

Formula:

Total Debt=Short-Term Debt+Current Portion of Long-Term Debt+Long-Term Debt

Example Balance Sheet for XYZ Corporation:

Steps to Calculate Total Debt:

1. Identify Short-Term Debt:
   
   • Locate the "Short-Term Debt" under current liabilities.​
   • In this example, Short-Term Debt is $30,000.​
2. Identify Current Portion of Long-Term Debt:
   
   • Find the "Current Portion of Long-Term Debt" under current liabilities.​
   • Here, it is $20,000.​
3. Identify Long-Term Debt:
   
   • Locate the "Long-Term Debt" under non-current liabilities.​
   • In this case, it is $150,000.​
4. Calculate Total Debt:
   
   • Add the Short-Term Debt, Current Portion of Long-Term Debt, and Long-Term Debt:

Total Debt=$30,000+$20,000+$150,000=$200,000

Pro Tip: Monitor your company's debt-to-equity (D/E) ratio regularly. A ratio between 1 and 2 is typically considered healthy, showing a balanced mix of debt and equity financing. However, the ideal ratio can vary depending on the industry.

Therefore, XYZ Corporation's total debt amounts to $200,000. This figure represents the company's combined short-term and long-term financial obligations. Furthermore, discussing how refining your debt collection processes can directly influence your company’s overall financial health and reduce the burden of total debt.

Read: Commercial Debt Recovery: Best Practices for Business Owners

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How Can Streamlining Collections Reduce Total Debt?

Optimizing the debt collection process is pivotal in minimizing a company's total outstanding debt. Implementing efficient collection strategies offers several advantages:​

• Accelerated Payment Cycles: Automated reminders and convenient payment options encourage prompt customer payments, reducing overdue accounts. ​
• Lower Bad Debt Write-Offs: Consistent follow-ups and timely dispute resolution decrease the likelihood of debts becoming uncollectible.
• Enhanced Customer Relations: Clear and professional communication fosters trust, leading to improved customer satisfaction and loyalty. ​
• Operational Efficiency: Automating routine tasks reduces manual workload, allowing staff to focus on strategic initiatives. ​

By adopting streamlined collection strategies, companies can effectively recover outstanding debts, thereby reducing total debt and strengthening financial health.

Effective debt collection strategies are crucial for reducing outstanding debt—South East Client Services inc can support your efforts with ethical and transparent practices

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Conclusion

Effectively managing your company's total debt is crucial for maintaining financial stability and fostering growth. By accurately calculating and understanding your total debt, you gain valuable insights into your financial leverage, enabling informed decision-making and strategic planning. Regular monitoring of debt levels, coupled with proactive management strategies, ensures that your business remains resilient and well-positioned to meet both current and future obligations.​

South East Client Services inc offers tailored debt collection and receivables management solutions for businesses. With over 30 years of experience, they specialize in ethical debt recovery, safeguarding company reputation while optimizing cash flow. Their team provides outstanding support in navigating debt management complexities.

Take control of your company's financial future with South East Client Services inc. Contact us or visit our Contact Us page to learn more.

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