Market Overview

How Does Synopsys's Debt Look?

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Shares of Synopsys Inc. (NASDAQ: SNPS) moved higher by 18.91% in the past three months. Before having a look at the importance of debt, let's look at how much debt Synopsys has.

Synopsys's Debt

Based on Synopsys’s financial statement as of May 22, 2020, long-term debt is at $114.37 million and current debt is at $121.41 million, amounting to $235.78 million in total debt. Adjusted for $856.42 million in cash-equivalents, the company's net debt is at $-620.64 million.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Synopsys’s $7.32 billion in total assets, the debt-ratio is at 0.03. 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 35% might be higher for one industry, whereas normal 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.

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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