How Does Science Applications Intl's Debt Look?
Over the past three months, shares of Science Applications Intl Inc. (NYSE: SAIC) moved lower by 3.90%. Before we understand the importance of debt, let's look at how much debt Science Applications Intl has.
Science Applications Intl's Debt
According to the Science Applications Intl’s most recent financial statement as reported on June 5, 2020, total debt is at $2.88 billion, with $2.80 billion in long-term debt and $83.00 million in current debt. Adjusting for $276.00 million in cash-equivalents, the company has a net debt of $2.61 billion.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Science Applications Intl has $6.02 billion in total assets, therefore making the debt-ratio 0.48. 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 35% might be higher for one industry, whereas normal for another.
Why Debt Is Important
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.
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.
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