A Look Into Charter Communications' Debt

Shares of Charter Communications Inc. CHTR moved higher by 12.79% in the past three months. Before having a look at the importance of debt, let's look at how much debt Charter Communications has.

Charter Communications's Debt

According to the Charter Communications’s most recent financial statement as reported on July 31, 2020, total debt is at $78.37 billion, with $77.66 billion in long-term debt and $706.00 million in current debt. Adjusting for $2.10 billion in cash-equivalents, the company has a net debt of $76.27 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Charter Communications’s $145.14 billion in total assets, the debt-ratio is at 0.54. 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, 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.