Over the past three months, shares of Under Armour UA moved higher by 7.32%. Before having a look at the importance of debt, let us look at how much debt Under Armour has.
Under Armour's Debt
According to the Under Armour’s most recent financial statement as reported on August 6, 2020, total debt is at $1.24 billion, with $987.95 million in long-term debt and $250.00 million in current debt. Adjusting for $1.08 billion in cash-equivalents, the company has a net debt of $158.54 million.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Under Armour has $5.00 billion in total assets, therefore making the debt-ratio 0.25. 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.
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.
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