Market Overview

A Look Into Cinedigm's Debt

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Over the past three months, shares of Cinedigm Inc. (NASDAQ: CIDM) decreased by 74.66%. Before we understand the importance of debt, let's look at how much debt Cinedigm has.

Cinedigm's Debt

According to the Cinedigm’s most recent balance sheet as reported on August 14, 2020, total debt is at $46.06 million, with $2.15 million in long-term debt and $43.91 million in current debt. Adjusting for $16.30 million in cash-equivalents, the company has a net debt of $29.76 million.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Cinedigm’s $111.10 million in total assets, the debt-ratio is at 0.41. 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. A debt ratio of 40% might be higher for one industry, whereas average for another.

Importance of Debt

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.

Interest-payment obligations can impact 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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