Shares of NN Inc. NNBR moved higher by 105.31% in the past three months. Before we understand the importance of debt, let's look at how much debt NN has.
According to the NN’s most recent balance sheet as reported on August 7, 2020, total debt is at $837.52 million, with $816.96 million in long-term debt and $20.57 million in current debt. Adjusting for $82.69 million in cash-equivalents, the company has a net debt of $754.83 million.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. NN has $1.30 billion in total assets, therefore making the debt-ratio 0.65. 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. A debt ratio of 40% might be higher for one industry, whereas average 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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