Market Overview

What Does Canadian Solar's Debt Look Like?

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Shares of Canadian Solar (NASDAQ: CSIQ) increased by 48.85% in the past three months. Before we understand the importance of debt, let us look at how much debt Canadian Solar has.

Canadian Solar's Debt

Based on Canadian Solar’s financial statement as of April 28, 2020, long-term debt is at $696.05 million and current debt is at $1.76 billion, amounting to $2.46 billion in total debt. Adjusted for $668.77 million in cash-equivalents, the company's net debt is at $1.79 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Canadian Solar’s $5.47 billion in total assets, the debt-ratio is at 0.45. Generally speaking, a debt-ratio more than one 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. 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.

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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