A Look Into Verizon's Debt

Shares of Verizon Communications Inc. VZ moved lower by 3.16% in the past three months. Before we understand the importance of debt, let's look at how much debt Verizon Communications has.

Verizon Communications's Debt

Based on Verizon Communications’s balance sheet as of April 27, 2020, long-term debt is at $106.56 billion and current debt is at $11.18 billion, amounting to $117.74 billion in total debt. Adjusted for $7.05 billion in cash-equivalents, the company's net debt is at $110.69 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Verizon Communications has $294.50 billion in total assets, therefore making the debt-ratio 0.4. 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 25% 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.