A look at Boeing’s debt
Over the past three months, shares of Boeing Inc. (NYSE: BA) increased by 16.50%. Before we understand the importance of debt, let’s take a look at the amount of debt that Boeing has.
Based on Boeing’s financial statements as of July 29, 2020, long-term debt stands at $ 58.46 billion and current debt at $ 2.92 billion, for a total of $ 61.38 billion . Adjusted for $ 19.99 billion in cash equivalents, the company’s net debt stands at $ 41.39 billion.
Investors look at the debt ratio to understand a company’s financial leverage. Boeing has $ 162.87 billion in total assets, making the debt ratio of 0.38. Generally speaking, a debt ratio greater than 1 means that a large part of the debt is financed by assets. As the debt ratio rises, the risk of default increases if interest rates rise. Different industries have different tolerance thresholds for debt ratios. A debt ratio of 40% may be higher for one industry, while it is average for another.
Why are investors interested in debt?
Besides equity, debt is an important factor in a company’s capital structure and contributes to its growth. Due to its lower cost of financing compared to equity, it becomes an attractive option for executives trying to raise capital.
Interest payment obligations can have an impact on the company’s cash flow. Having financial leverage also allows companies to use additional capital for their business operations, allowing stock owners to keep excess profits generated by debt capital.
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