Market Overview

BorgWarner's Debt Overview

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Shares of BorgWarner Inc. (NYSE: BWA) rose by 29.02% in the past three months. Before having a look at the importance of debt, let's look at how much debt BorgWarner has.

BorgWarner's Debt

Based on BorgWarner’s financial statement as of May 6, 2020, long-term debt is at $1.66 billion and current debt is at $286.00 million, amounting to $1.95 billion in total debt. Adjusted for $901.00 million in cash-equivalents, the company's net debt is at $1.05 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering BorgWarner’s $9.50 billion in total assets, the debt-ratio is at 0.21. 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 25% might be higher for one industry, whereas average for another.

Why Investors Look At 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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