Market Overview

Texas Instruments' Debt Overview


Over the past three months, shares of Texas Instruments Inc. (NASDAQ: TXN) rose by 18.49%. Before having a look at the importance of debt, let's look at how much debt Texas Instruments has.

Texas Instruments's Debt

According to the Texas Instruments’s most recent financial statement as reported on April 22, 2020, total debt is at $6.55 billion, with $5.50 billion in long-term debt and $1.05 billion in current debt. Adjusting for $2.52 billion in cash-equivalents, the company has a net debt of $4.03 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Texas Instruments’s $17.28 billion in total assets, the debt-ratio is at 0.38. 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, 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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