Market Overview

ADT's Debt Overview


Over the past three months, shares of ADT Inc. (NYSE: ADT) rose by 145.29%. Before we understand the importance of debt, let's look at how much debt ADT has.

ADT's Debt

Based on ADT’s financial statement as of May 7, 2020, long-term debt is at $9.90 billion and current debt is at $58.80 million, amounting to $9.96 billion in total debt. Adjusted for $118.14 million in cash-equivalents, the company's net debt is at $9.84 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering ADT’s $16.26 billion in total assets, the debt-ratio is at 0.61. 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. For example, a debt ratio of 25% 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.

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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