MGM Resorts International's Debt Overview
Shares of MGM Resorts Intl Inc. (NYSE: MGM) decreased by 6.18% in the past three months. Before having a look at the importance of debt, let's look at how much debt MGM Resorts Intl has.
MGM Resorts Intl's Debt
Based on MGM Resorts Intl’s balance sheet as of May 1, 2020, long-term debt is at $12.31 billion and current debt is at $108.69 million, amounting to $12.42 billion in total debt. Adjusted for $6.02 billion in cash-equivalents, the company's net debt is at $6.40 billion.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering MGM Resorts Intl’s $39.12 billion in total assets, the debt-ratio is at 0.32. 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, whereas normal for another.
Why Debt Is Important
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. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.
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