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Shares of Avis Budget Group (NASDAQ:CAR) moved higher by 40.16% in the past three months. Before having a look at the importance of debt, let us look at how much debt Avis Budget Gr has.
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Avis Budget Gr's Debt
Based on Avis Budget Gr's financial statement as of May 4, 2021, long-term debt is at $5.92 billion and current debt is at $19.00 million, amounting to $5.93 billion in total debt. Adjusted for $576.00 million in cash-equivalents, the company's net debt is at $5.36 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 include 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.
To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Avis Budget Gr's $18.61 billion in total assets, the debt-ratio is at 0.32. Generally speaking, a debt-ratio more than one 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 25% might be higher for one industry and average for another.
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Importance Of Debt
Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.
Interest-payment obligations can impact 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.
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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.