A Look Into Intuit's Debt

Over the past three months, shares of Intuit Inc. INTU rose by 24.16%. Before we understand the importance of debt, let's look at how much debt Intuit has.

Intuit's Debt

Based on Intuit’s balance sheet as of May 21, 2020, long-term debt is at $48.00 million and current debt is at $350.00 million, amounting to $398.00 million in total debt. Adjusted for $3.37 billion in cash-equivalents, the company's net debt is at $-2.97 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Intuit has $7.76 billion in total assets, therefore making the debt-ratio 0.05. 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 25% might be higher for one industry, whereas average for another.

Why Investors 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.