Shares of Verizon Communications Inc. (NYSE:VZ) decreased by 7.40% in the past three months. Before having a look at the importance of debt, let’s look at how much debt Verizon Communications has.
Verizon Communications Debt
According to the Verizon Communications’s most recent balance sheet as reported on October 25, 2022, total debt is at $147.91 billion, with $132.91 billion in long-term debt and $14.99 billion in current debt. Adjusting for $2.08 billion in cash-equivalents, the company has a net debt of $145.82 billion.
Let’s define some of the terms we used in the paragraph above. Current debt is the portion of a company’s debt which is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents includes cash and any liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Verizon Communications has $375.09 billion in total assets, therefore making the debt-ratio 0.39. 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. A debt ratio of 40% might be higher for one industry, but average 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.
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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This article was generated by Benzinga’s automated content engine and reviewed by an editor.
