A Look Into Broadcom's Debt

Over the past three months, shares of Broadcom Inc. AVGO moved higher by 4.18%. Before having a look at the importance of debt, let's look at how much debt Broadcom has.

Broadcom Debt

Based on Broadcom's balance sheet as of March 8, 2023, long-term debt is at $38.17 billion and current debt is at $1.11 billion, amounting to $39.28 billion in total debt. Adjusted for $12.65 billion in cash-equivalents, the company's net debt is at $26.64 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.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Broadcom's $72.98 billion in total assets, the debt-ratio is at 0.54. 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 25% might be higher for one industry, but normal for another.

debt_fig

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, 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.

Looking for stocks with low debt-to-equity ratios? Check out Benzinga Pro, a market research platform which provides investors with near-instantaneous access to dozens of stock metrics - including debt-to-equity ratio. Click here to learn more.

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

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