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Over the past three months, shares of Boeing Inc. (NYSE:BA) rose by 31.35%. Before we understand the importance of debt, let's look at how much debt Boeing has.
Boeing's Debt
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Based on Boeing’s financial statement as of April 29, 2020, long-term debt is at $33.75 billion and current debt is at $5.17 billion, amounting to $38.93 billion in total debt. Adjusted for $15.04 billion in cash-equivalents, the company's net debt is at $23.89 billion.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Boeing’s $143.07 billion in total assets, the debt-ratio is at 0.27. 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. For example, a debt ratio of 35% might be higher for one industry, whereas normal 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.
However, interest-payment obligations can have an adverse impact on the cash-flow of the company. Having financial leverage also allows companies to use additional capital for business operations, allowing equity owners to retain excess profit, generated by the debt capital.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.