NN's Debt Overview

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.

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NN's Debt

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.