What Does Dell's Debt Look Like?

Over the past three months, shares of Dell Technologies Inc. DELL rose by 30.70%. Before having a look at the importance of debt, let's look at how much debt Dell Technologies has.

Dell Technologies's Debt

Based on Dell Technologies’s financial statement as of June 8, 2020, long-term debt is at $48.35 billion and current debt is at $8.38 billion, amounting to $56.73 billion in total debt. Adjusted for $12.23 billion in cash-equivalents, the company's net debt is at $44.50 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Dell Technologies’s $120.24 billion in total assets, the debt-ratio is at 0.47. 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 25% 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.

Interest-payment obligations can impact the cash-flow of the company. 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.