Shares of Automatic Data Processing Inc. (NASDAQ:ADP) fell by 8.49% in the past three months. Before having a look at the importance of debt, let's look at how much debt Automatic Data Processing has.

Automatic Data Processing Debt

Based on Automatic Data Processing's financial statement as of February 2, 2023, long-term debt is at $2.99 billion and current debt is at $0, amounting to $2.99 billion in total debt. Adjusted for $1.34 billion in cash-equivalents, the company's net debt is at $1.64 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.

Why Debt Is Important

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. 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.