Apple's Debt Overview

Apple's Debt Overview

Shares of Apple Inc. AAPL fell by 8.30% in the past three months. Before having a look at the importance of debt, let's look at how much debt Apple has.

Apple Debt

Based on Apple's balance sheet as of October 28, 2022, long-term debt is at $98.96 billion and current debt is at $21.11 billion, amounting to $120.07 billion in total debt. Adjusted for $23.65 billion in cash-equivalents, the company's net debt is at $96.42 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.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Apple's $352.75 billion in total assets, the debt-ratio is at 0.34. 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 40% 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.

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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This article was generated by Benzinga's automated content engine and reviewed by an editor.

Posted In: BZI-DebtNewsIntraday UpdateMarkets