Switch's Debt Overview

Shares of Switch Inc. (NYSE: SWCH) rose by 11.13% in the past three months. Before having a look at the importance of debt, let's look at how much debt Switch has.

Switch's Debt

Based on Switch’s financial statement as of May 11, 2020, long-term debt is at $871.66 million and current debt is at $6.01 million, amounting to $877.67 million in total debt. Adjusted for $64.71 million in cash-equivalents, the company's net debt is at $812.96 million.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Switch has $1.85 billion in total assets, therefore making the debt-ratio 0.47. 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 40% might be higher for one industry, whereas normal for another.

Why Shareholders 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.

Interest-payment obligations can impact 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.