A Look Into ION Geophysical's Debt

Over the past three months, shares of ION Geophysical Inc. IO moved lower by 22.59%. Before having a look at the importance of debt, let's look at how much debt ION Geophysical has.

ION Geophysical's Debt

Based on ION Geophysical’s financial statement as of August 6, 2020, long-term debt is at $119.23 million and current debt is at $23.68 million, amounting to $142.92 million in total debt. Adjusted for $62.54 million in cash-equivalents, the company's net debt is at $80.38 million.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering ION Geophysical’s $236.23 million in total assets, the debt-ratio is at 0.61. As a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. For example, a debt ratio of 40% might be higher for one industry, whereas normal for another.

Why Debt Is Important

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. 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.