What Does Redwire's Debt Look Like?

Shares of Redwire Inc. RDW increased by 85.75% in the past three months. Before having a look at the importance of debt, let's look at how much debt Redwire has.

Redwire Debt

Based on Redwire's financial statement as of November 14, 2022, long-term debt is at $89.51 million and current debt is at $3.48 million, amounting to $92.99 million in total debt. Adjusted for $7.03 million in cash-equivalents, the company's net debt is at $85.96 million.

Let's define some of the terms we used in the paragraph above. Current debt is the portion of a company's debt which is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents includes cash and any liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.

Investors look at the debt-ratio to understand how much financial leverage a company has. Redwire has $184.37 million in total assets, therefore making the debt-ratio 0.5. 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, but normal for another.

Why Debt Is Important

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.

However, due to interest-payment obligations, cash-flow of a company can be impacted. 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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This article was generated by Benzinga's automated content engine and reviewed by an editor.