A Look Into OSI Systems's Debt

Shares of OSI Systems Inc. OSIS increased by 0.98% in the past three months. Before we understand the importance of debt, let's look at how much debt OSI Systems has.

OSI Systems's Debt

Based on OSI Systems’s financial statement as of May 1, 2020, long-term debt is at $264.78 million and current debt is at $95.90 million, amounting to $360.68 million in total debt. Adjusted for $101.03 million in cash-equivalents, the company's net debt is at $259.65 million.

Investors look at the debt-ratio to understand how much financial leverage a company has. OSI Systems has $1.29 billion in total assets, therefore making the debt-ratio 0.28. 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

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, due to interest-payment obligations, cash-flow of a company can be impacted. 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.