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Shares of Synnex (NYSE: SNX) increased by 11.43% in the past three months. Before we understand the importance of debt, let us look at how much debt Synnex has.
Based on Synnex’s balance sheet as of July 9, 2020, long-term debt is at $2.65 billion and current debt is at $159.44 million, amounting to $2.80 billion in total debt. Adjusted for $1.11 billion in cash-equivalents, the company's net debt is at $1.69 billion.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Synnex has $12.64 billion in total assets, therefore making the debt-ratio 0.22. As a rule of thumb, a debt-ratio more than one 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. A debt ratio of 35% might be higher for one industry and average for another.
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.
Interest-payment obligations can impact 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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