What is the long lived asset ratio used to compare?

The long-lived asset ratio primarily serves to evaluate the relationship between fixed assets and fixed liabilities. This ratio provides insight into a company’s dependency on long-term assets to support its long-term financial obligations.

When a business has significant fixed assets, these are typically necessary for ongoing operations, and analyzing them against fixed liabilities (like long-term debt) allows stakeholders to assess financial stability and risk. A higher ratio might indicate that a business has more fixed assets relative to its fixed liabilities, suggesting better coverage of these obligations through its long-term resources.

By focusing solely on the interaction between fixed assets and fixed liabilities, this ratio helps gauge whether the company is capitalizing effectively on its long-lived assets to mitigate long-term financing risks. This analysis is crucial in the funeral service industry, where substantial investments in facilities, equipment, and vehicles are common, and long-term debt management plays a vital role in achieving operational sustainability.