Over the past three months, shares of S&W Seed SANW fell by 33.14%. Before we understand the importance of debt, let us look at how much debt S&W Seed has.
S&W Seed's Debt
Based on S&W Seed's financial statement as of November 12, 2021, long-term debt is at $4.41 million and current debt is at $46.88 million, amounting to $51.29 million in total debt. Adjusted for $1.89 million in cash-equivalents, the company's net debt is at $49.40 million.
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 S&W Seed's $151.39 million in total assets, the debt-ratio is at 0.34. 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.
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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