Johnson Controls Intl's Debt Overview

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

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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.