Market Overview

Forward Industries: Debt Overview

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Over the past three months, shares of Forward Industries Inc. (NASDAQ: FORD) moved higher by 57.36%. Before we understand the importance of debt, let's look at how much debt Forward Industries has.

Forward Industries's Debt

Based on Forward Industries’s financial statement as of June 25, 2020, long-term debt is at $10.59 thousand and current debt is at $2.05 million, amounting to $2.06 million in total debt. Adjusted for $1.35 million in cash-equivalents, the company's net debt is at $709.92 thousand.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Forward Industries has $16.18 million in total assets, therefore making the debt-ratio 0.13. 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 40% 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.

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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