How Does Boeing's Debt Look Like?

Over the past three months, shares of Boeing Inc. BA rose by 31.35%. 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 April 29, 2020, long-term debt is at $33.75 billion and current debt is at $5.17 billion, amounting to $38.93 billion in total debt. Adjusted for $15.04 billion in cash-equivalents, the company's net debt is at $23.89 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Boeing’s $143.07 billion in total assets, the debt-ratio is at 0.27. 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. For example, a debt ratio of 35% might be higher for one industry, whereas normal for another.

Why Debt Is Important

Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.

However, interest-payment obligations can have an adverse impact on 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.