What Does Cisco's Debt Look Like?
Over the past three months, shares of Cisco Systems Inc. (NASDAQ: CSCO) fell by 0.93%. Before we understand the importance of debt, let's look at how much debt Cisco Systems has.
Cisco Systems's Debt
Based on Cisco Systems’s financial statement as of May 18, 2020, long-term debt is at $11.58 billion and current debt is at $4.51 billion, amounting to $16.08 billion in total debt. Adjusted for $10.37 billion in cash-equivalents, the company's net debt is at $5.72 billion.
Investors look at the debt-ratio to understand how much financial leverage a company has. Cisco Systems has $91.39 billion in total assets, therefore making the debt-ratio 0.18. 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.
Why Investors Look At 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. 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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