What Does Knight-Swift's Debt Look Like?

Over the past three months, shares of Knight-Swift KNX moved lower by 1.56%. Before having a look at the importance of debt, let us look at how much debt Knight-Swift has.

Knight-Swift's Debt

According to the Knight-Swift’s most recent financial statement as reported on August 5, 2020, total debt is at $851.76 million, with $448.02 million in long-term debt and $403.74 million in current debt. Adjusting for $117.76 million in cash-equivalents, the company has a net debt of $734.00 million.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Knight-Swift’s $8.28 billion in total assets, the debt-ratio is at 0.1. 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.

Why Debt Is Important

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, interest-payment obligations can have an adverse impact on the cash-flow of the company. Having financial leverage also allows companies to use additional capital for business operations, allowing equity owners to retain excess profit, generated by the debt capital.