How Does Adobe's Debt Look?

Shares of Adobe ADBE moved higher by 16.01% in the past three months. Before we understand the importance of debt, let us look at how much debt Adobe has.

Adobe's Debt

Based on Adobe’s balance sheet as of June 24, 2020, long-term debt is at $4.11 billion and current debt is at $0.00, amounting to $4.11 billion in total debt. Adjusted for $3.04 billion in cash-equivalents, the company's net debt is at $1.07 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Adobe’s $21.60 billion in total assets, the debt-ratio is at 0.19. 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 25% might be higher for one industry and normal for another.

Importance Of Debt

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.

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.