Over the past three months, shares of AirSculpt Technologies Inc. AIRS moved lower by 69.20%. Before we understand the importance of debt, let's look at how much debt AirSculpt Technologies has.
AirSculpt Technologies's Debt
According to the AirSculpt Technologies's most recent balance sheet as reported on August 12, 2022, total debt is at $82.66 million, with $81.81 million in long-term debt and $850 thousand in current debt. Adjusting for $35.25 million in cash-equivalents, the company has a net debt of $47.41 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.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering AirSculpt Technologies's $218.78 million in total assets, the debt-ratio is at 0.38. 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. For example, a debt ratio of 35% might be higher for one industry, but normal 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, 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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