A Look Into ScanSource's Debt

Shares of ScanSource Inc. SCSC decreased by 9.29% in the past three months. Before we understand the importance of debt, let's look at how much debt ScanSource has.

ScanSource's Debt

Based on ScanSource’s financial statement as of August 31, 2020, long-term debt is at $210.89 million and current debt is at $7.84 million, amounting to $218.73 million in total debt. Adjusted for $29.48 million in cash-equivalents, the company's net debt is at $189.24 million.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. ScanSource has $1.69 billion in total assets, therefore making the debt-ratio 0.13. 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 35% 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.

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.