Market Overview

A Look Into SolarWinds's Debt

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Over the past three months, shares of SolarWinds (NYSE: SWI) moved higher by 15.95%. Before we understand the importance of debt, let us look at how much debt SolarWinds has.

SolarWinds's Debt

Based on SolarWinds’s balance sheet as of August 10, 2020, long-term debt is at $1.89 billion and current debt is at $20.06 million, amounting to $1.91 billion in total debt. Adjusted for $331.41 million in cash-equivalents, the company's net debt is at $1.58 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. SolarWinds has $5.35 billion in total assets, therefore making the debt-ratio 0.36. 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 Investors 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.

Interest-payment obligations can impact 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.

 

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