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Market Overview

A Look Into Science Applications's Debt

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Shares of Science Applications Intl Inc. (NYSE: SAIC) fell by 4.60% in the past three months. Before we understand the importance of debt, let's look at how much debt Science Applications Intl has.

Science Applications Intl's Debt

Based on Science Applications Intl’s balance sheet as of June 5, 2020, long-term debt is at $2.80 billion and current debt is at $83.00 million, amounting to $2.88 billion in total debt. Adjusted for $276.00 million in cash-equivalents, the company's net debt is at $2.61 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Science Applications Intl’s $6.02 billion in total assets, the debt-ratio is at 0.48. 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 25% 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. 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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