Market Overview

How Does Tesla's Debt Look?

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Over the past three months, shares of Tesla (NASDAQ: TSLA) rose by 115.79%. Before having a look at the importance of debt, let us look at how much debt Tesla has.

Tesla's Debt

According to the Tesla’s most recent balance sheet as reported on July 28, 2020, total debt is at $14.10 billion, with $10.42 billion in long-term debt and $3.68 billion in current debt. Adjusting for $8.62 billion in cash-equivalents, the company has a net debt of $5.48 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Tesla has $38.13 billion in total assets, therefore making the debt-ratio 0.37. 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 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.

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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