TRACON Pharmaceuticals: Debt Overview

Shares of TRACON Pharmaceuticals Inc. TCON moved higher by 15.79% in the past three months. Before having a look at the importance of debt, let's look at how much debt TRACON Pharmaceuticals has.

TRACON Pharmaceuticals's Debt

According to the TRACON Pharmaceuticals’s most recent financial statement as reported on August 5, 2020, total debt is at $4.51 million, with $2.76 million in long-term debt and $1.75 million in current debt. Adjusting for $14.45 million in cash-equivalents, the company has a net debt of $-9.95 million.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. TRACON Pharmaceuticals has $15.65 million in total assets, therefore making the debt-ratio 0.29. 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

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.