A Look Into Royal Caribbean Group's Debt

Shares of Royal Caribbean Group Inc. RCL increased by 37.19% in the past three months. Before having a look at the importance of debt, let's look at how much debt Royal Caribbean Group has.

Royal Caribbean Group's Debt

According to the Royal Caribbean Group’s most recent balance sheet as reported on August 10, 2020, total debt is at $18.95 billion, with $17.75 billion in long-term debt and $1.20 billion in current debt. Adjusting for $4.15 billion in cash-equivalents, the company has a net debt of $14.80 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Royal Caribbean Group’s $33.31 billion in total assets, the debt-ratio is at 0.57. 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 Shareholders Look At Debt?

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. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.