Twitter's Debt Overview
Shares of Twitter Inc. (NYSE: TWTR) moved higher by 33.05% in the past three months. Before we understand the importance of debt, let's look at how much debt Twitter has.
Twitter's Debt
Based on Twitter’s balance sheet as of August 3, 2020, long-term debt is at $3.43 billion and current debt is at $7.25 million, amounting to $3.43 billion in total debt. Adjusted for $3.11 billion in cash-equivalents, the company's net debt is at $322.15 million.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Twitter’s $12.55 billion in total assets, the debt-ratio is at 0.27. 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 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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