ARC Document Solutions (NYSE:ARC) shares have dropped 8.44 percent in the last three months. Let’s take a look at how much debt ARC Document Solutions has before we get into the importance of debt.
The Debt of ARC Document Solutions
Long-term debt is $71.78 million, and current debt is $16.60 million, for a total debt of $88.38 million, according to ARC Document Solutions’ balance sheet as of May 5, 2021. The company’s net debt is $38.92 million after accounting for $49.46 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. ARC Document Solutions has a total asset value of $332.31 million, resulting in a debt-to-asset ratio of 0.27. 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.
Why Are Shareholders Concerned About Debt?
Debt is a vital part of a company’s capital structure, and it may help it grow. Debt typically has a lower financing cost than stock, making it a more appealing alternative for CEOs.
Interest payments, on the other hand, can have a negative impact on a company’s cash flow. Financial leverage also allows businesses to use more money for operations, allowing equity owners to keep the excess profit earned by loan financing.
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