Shares of Apple Inc. (NASDAQ:AAPL) rose by 11.52% in the past three months. Before having a look at the importance of debt, let’s look at how much debt Apple has.
Based on Apple’s financial statement as of February 3, 2023, long-term debt is at $99.63 billion and current debt is at $11.48 billion, amounting to $111.11 billion in total debt. Adjusted for $20.54 billion in cash-equivalents, the company’s net debt is at $90.58 billion.
Let’s define some of the terms we used in the paragraph above. Current debt is the portion of a company’s debt which is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents includes cash and any liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.
Investors look at the debt-ratio to understand how much financial leverage a company has. Apple has $346.75 billion in total assets, therefore making the debt-ratio 0.32. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. A debt ratio of 35% might be higher for one industry, but average for another.
Why Debt Is Important
Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.
Interest-payment obligations can impact the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.
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This article was generated by Benzinga’s automated content engine and reviewed by an editor.