Over the past three months, shares of Gartner Inc. (NYSE:IT) rose by 8.18%. Before having a look at the importance of debt, let's look at how much debt Gartner has.

Gartner's Debt

Based on Gartner’s financial statement as of August 4, 2020, long-term debt is at $1.94 billion and current debt is at $38.02 million, amounting to $1.98 billion in total debt. Adjusted for $356.63 million in cash-equivalents, the company's net debt is at $1.62 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Gartner has $6.81 billion in total assets, therefore making the debt-ratio 0.29. 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 35% might be higher for one industry, whereas normal for another.

Importance of 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.

Interest-payment obligations can impact 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.