Market Overview

Johnson Controls Intl's Debt Overview

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Over the past three months, shares of Johnson Controls Intl Inc. (NYSE: JCI) increased by 34.92%. Before we understand the importance of debt, let's look at how much debt Johnson Controls Intl has.

Johnson Controls Intl's Debt

Based on Johnson Controls Intl’s balance sheet as of July 31, 2020, long-term debt is at $5.67 billion and current debt is at $2.42 billion, amounting to $8.09 billion in total debt. Adjusted for $2.34 billion in cash-equivalents, the company's net debt is at $5.75 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Johnson Controls Intl has $41.28 billion in total assets, therefore making the debt-ratio 0.2. 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. A debt ratio of 35% might be higher for one industry, whereas average for another.

Importance of Debt

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, interest-payment obligations can have an adverse impact on 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.

 

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