Magellan Health (NASDAQ:MGLN) stock has gained 0.02 percent in the last three months. Let’s take a look at how much debt Magellan Health has before we get into the importance of debt.
The Debt of Magellan Health
Long-term debt is $526.68 million, and current debt is $6.54 million, for a total debt of $533.23 million, according to Magellan Health’s balance sheet as of April 30, 2021. The company’s net debt is $76.92 million after accounting for $456.31 million in cash equivalents.
Let’s define some of the terminology used in the preceding paragraph. The portion of a company’s debt due within a year is called current debt, while the portion due in more than a year is called long-term debt. Cash and liquid securities with maturities of 90 days or less are considered cash equivalents. Current debt plus long-term debt minus cash equivalents equals total debt.
The debt-ratio is used by shareholders to determine how much financial leverage a company has. Magellan Health’s total assets are $3.24 billion, resulting in a debt-to-asset ratio of 0.16. A debt-to-asset ratio greater than one indicates that assets are used to fund a significant percentage of debt. If interest rates rise, the danger of defaulting on loans rises as the debt-to-income ratio rises. Varying industries have different debt-ratio tolerance criteria. A debt-to-equity ratio of 35 percent may be excessive in one business but appropriate in another.
The Importance of Debt
Debt, in addition to equity, is an important component of a company’s financial structure and helps to its growth. It becomes an appealing choice for executives seeking finance because it has a lower borrowing cost than stock.
Interest payments can have a negative impact on a company’s cash flow. When corporations use loan capital for commercial operations, equity owners can keep the excess profit earned by the debt capital.
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