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How Does ON Semiconductor's Debt Look?

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Shares of ON Semiconductor Inc. (NASDAQ: ON) increased by 45.16% in the past three months. Before having a look at the importance of debt, let's look at how much debt ON Semiconductor has.

ON Semiconductor's Debt

Based on ON Semiconductor’s financial statement as of May 11, 2020, long-term debt is at $4.04 billion and current debt is at $689.60 million, amounting to $4.73 billion in total debt. Adjusted for $1.98 billion in cash-equivalents, the company's net debt is at $2.75 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. ON Semiconductor has $9.42 billion in total assets, therefore making the debt-ratio 0.5. 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 35% might be higher for one industry, whereas average for another.

Why Debt Is Important

Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.

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.

 

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