IBM’s (NYSE:IBM) stock has up 1.15 percent in the last three months. Let’s take a look at how much debt IBM has before we get into the importance of debt.
The Debt of IBM
Total debt is $56.40 billion, according to IBM’s most recent balance sheet, which was released on April 27, 2021, with $51.21 billion in long-term debt and $5.20 billion in current debt. The company’s net debt is $45.87 billion after accounting for $10.53 billion 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. The debt-to-asset ratio for IBM is 0.38, based on its total assets of $148.63 billion. A debt-to-asset ratio greater than one shows that a significant percentage of debt is funded by assets. A larger debt-to-equity ratio could indicate that the corporation is putting itself at danger of default if interest rates rise. Debt-to-income ratios, on the other hand, vary greatly amongst industries. In one industry, a debt ratio of 35 percent may be greater than average, while in another, it may be ordinary.
The Importance of 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.
However, a company’s cash flow may be harmed as a result of interest-payment requirements. 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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