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A Look Into Boeing's Debt

BA) moved higher by 16.50%. Before we understand the importance of debt, let’s look at how much debt Boeing has.

Boeing’s Debt

Based on Boeing’s financial statement as of July 29, 2020, long-term debt is at $58.46 billion and current debt is at $2.92 billion, amounting to $61.38 billion in total debt. Adjusted for $19.99 billion in cash-equivalents, the company’s net debt is at $41.39 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Boeing has $162.87 billion in total assets, therefore making the debt-ratio 0.38. 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, whereas average for another.

Why Investors Look At Debt?

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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