A Look Into Norwegian Cruise Line's Debt

Shares of Norwegian Cruise Line Inc. NCLH moved higher by 42.12% in the past three months. Before having a look at the importance of debt, let's look at how much debt Norwegian Cruise Line has.

Norwegian Cruise Line's Debt

Based on Norwegian Cruise Line’s balance sheet as of May 15, 2020, long-term debt is at $8.43 billion and current debt is at $173.80 million, amounting to $8.61 billion in total debt. Adjusted for $1.36 billion in cash-equivalents, the company's net debt is at $7.25 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Norwegian Cruise Line has $16.46 billion in total assets, therefore making the debt-ratio 0.52. 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 25% might be higher for one industry, whereas normal for another.

Why Shareholders Look At 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.