Shares of Pulmonx Inc. LUNG decreased by 71.09% in the past three months. Before we understand the importance of debt, let's look at how much debt Pulmonx has.
Based on Pulmonx's balance sheet as of August 8, 2022, long-term debt is at $14.46 million and current debt is at $2.92 million, amounting to $17.38 million in total debt. Adjusted for $121.95 million in cash-equivalents, the company's net debt is at $-104 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 includes 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.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Pulmonx has $212.73 million in total assets, therefore making the debt-ratio 0.08. Generally speaking, a debt-ratio more than 1 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, but average for another.
Why Shareholders Look At 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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