A Look Into Twilio's Debt

Shares of Twilio TWLO rose by 20.02% in the past three months. Before we understand the importance of debt, let us look at how much debt Twilio has.

Twilio's Debt

According to the Twilio’s most recent balance sheet as reported on August 4, 2020, total debt is at $487.80 million, with $480.66 million in long-term debt and $7.13 million in current debt. Adjusting for $475.70 million in cash-equivalents, the company has a net debt of $12.10 million.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Twilio has $5.29 billion in total assets, therefore making the debt-ratio 0.09. 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 average for another.

Why Shareholders Look At 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, 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.