What Does Oracle's Debt Look Like?

Over the past three months, shares of Oracle ORCL moved higher by 9.54%. Before we understand the importance of debt, let us look at how much debt Oracle has.

Oracle's Debt

According to the Oracle’s most recent financial statement as reported on June 22, 2020, total debt is at $71.60 billion, with $69.23 billion in long-term debt and $2.37 billion in current debt. Adjusting for $37.24 billion in cash-equivalents, the company has a net debt of $34.36 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Oracle has $115.44 billion in total assets, therefore making the debt-ratio 0.62. As a rule of thumb, a debt-ratio more than one 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. A debt ratio of 40% might be higher for one industry and average 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, 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.