How Does Priority Tech's Debt Look?

Over the past three months, shares of Priority Tech Holdings Inc. PRTH moved higher by 24.00%. Before having a look at the importance of debt, let's look at how much debt Priority Tech Holdings has.

Priority Tech Holdings's Debt

According to the Priority Tech Holdings’s most recent balance sheet as reported on August 14, 2020, total debt is at $492.36 million, with $480.64 million in long-term debt and $11.72 million in current debt. Adjusting for $5.85 million in cash-equivalents, the company has a net debt of $486.51 million.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Priority Tech Holdings has $449.70 million in total assets, therefore making the debt-ratio 1.09. 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

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.