Shares of Lumen Technologies Inc. LUMN decreased by 44.34% in the past three months. Before having a look at the importance of debt, let's look at how much debt Lumen Technologies has.
Lumen Technologies Debt
Based on Lumen Technologies's balance sheet as of November 3, 2022, long-term debt is at $21.76 billion and current debt is at $3.66 billion, amounting to $25.42 billion in total debt. Adjusted for $252.00 million in cash-equivalents, the company's net debt is at $25.17 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 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.
Investors look at the debt-ratio to understand how much financial leverage a company has. Lumen Technologies has $54.82 billion in total assets, therefore making the debt-ratio 0.46. As a rule of thumb, a debt-ratio more than 1 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. For example, a debt ratio of 25% might be higher for one industry, but normal 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.
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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This article was generated by Benzinga's automated content engine and reviewed by an editor.
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