Microsoft's Debt Overview

Over the past three months, shares of Microsoft Inc. MSFT increased by 26.81%. Before we understand how much debt Microsoft has, let’s have a look at how much debt Microsoft is carrying.

Microsoft's Debt

Based on Microsoft’s financial statement as of April 29, 2020, long-term debt is at $62.86 billion and current debt is at $3.75 billion, amounting to $66.61 billion in total debt. Adjusted for $11.71 billion in cash-equivalents, the company's net debt is at $54.90 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Microsoft has $285.45 billion in total assets, therefore making the debt-ratio 0.23. As a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. A debt ratio of 40% might be higher for one industry, whereas average for another.

Importance of Debt

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.