Market Overview

General Electric: Debt Insights

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Shares of General Electric Inc. (NYSE: GE) increased by 12.88% 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.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. General Electric has $262.02 billion in total assets, therefore making the debt-ratio 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.

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. 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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