Market Overview

Infinera's Debt Overview

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Over the past three months, shares of Infinera Inc. (NASDAQ: INFN) moved higher by 81.90%. Before we understand the importance of debt, let's look at how much debt Infinera has.

Infinera's Debt

According to the Infinera’s most recent financial statement as reported on August 6, 2020, total debt is at $538.05 million, with $510.33 million in long-term debt and $27.73 million in current debt. Adjusting for $202.78 million in cash-equivalents, the company has a net debt of $335.27 million.

Investors look at the debt-ratio to understand how much financial leverage a company has. Infinera has $1.60 billion in total assets, therefore making the debt-ratio 0.34. 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 25% might be higher for one industry, whereas normal for another.

Why Debt Is Important

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

 

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