Market Overview

Verizon's Debt Overview


Shares of Verizon Communications Inc. (NYSE: VZ) rose by 4.56% in the past three months. Before we understand the importance of debt, let's look at how much debt Verizon Communications has.

Verizon Communications's Debt

Based on Verizon Communications’s balance sheet as of July 28, 2020, long-term debt is at $106.19 billion and current debt is at $6.65 billion, amounting to $112.84 billion in total debt. Adjusted for $7.88 billion in cash-equivalents, the company's net debt is at $104.96 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Verizon Communications’s $293.26 billion in total assets, the debt-ratio is at 0.38. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. For example, a debt ratio of 35% might be higher for one industry, whereas normal 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.

However, due to interest-payment obligations, cash-flow of a company can be impacted. 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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