Market Overview

Broadcom's Debt Overview

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Shares of Broadcom Inc. (NASDAQ: AVGO) moved higher by 10.68% in the past three months. Before having a look at the importance of debt, let's look at how much debt Broadcom has.

Broadcom's Debt

According to the Broadcom’s most recent financial statement as reported on June 12, 2020, total debt is at $45.86 billion, with $45.04 billion in long-term debt and $819.00 million in current debt. Adjusting for $9.21 billion in cash-equivalents, the company has a net debt of $36.66 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Broadcom has $81.55 billion in total assets, therefore making the debt-ratio 0.56. 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 Shareholders Look At 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. 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.

 

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