Market Overview

A Look Into General Electric's Debt

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Shares of General Electric Inc. (NYSE: GE) moved higher by 8.80% in the past three months. Before we understand the importance of debt, let's look at how much debt General Electric has.

General Electric's Debt

According to the General Electric’s most recent financial statement as reported on April 29, 2020, total debt is at $85.15 billion, with $66.39 billion in long-term debt and $18.77 billion in current debt. Adjusting for $47.29 billion in cash-equivalents, the company has a net debt of $37.87 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering General Electric’s $262.02 billion in total assets, the debt-ratio is at 0.32. As a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. A debt ratio of 35% might be higher for one industry, whereas 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.

However, due to interest-payment obligations, cash-flow of a company can be impacted. 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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