Market Overview

A Look Into Oracle's Debt


Shares of Oracle (NYSE: ORCL) decreased by 1.79% in the past three months. Before having a look at the importance of debt, let us look at how much debt Oracle has.

Oracle's Debt

Based on Oracle’s balance sheet as of September 15, 2020, long-term debt is at $67.77 billion and current debt is at $3.00 billion, amounting to $70.77 billion in total debt. Adjusted for $27.28 billion in cash-equivalents, the company's net debt is at $43.49 billion.

Let's define some of the terms we used in the paragraph above. Current debt is the portion of a company's debt which is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents include cash and any liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Oracle’s $113.55 billion in total assets, the debt-ratio is at 0.62. 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 35% might be higher for one industry and average 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. 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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A Look Into Oracle's Debt


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