A Look Into Allegiant Travel's Debt

Over the past three months, shares of Allegiant Travel ALGT moved higher by 8.78%. Before we understand the importance of debt, let us look at how much debt Allegiant Travel has.

Allegiant Travel's Debt

Based on Allegiant Travel’s balance sheet as of August 4, 2020, long-term debt is at $1.27 billion and current debt is at $227.73 million, amounting to $1.50 billion in total debt. Adjusted for $272.21 million in cash-equivalents, the company's net debt is at $1.23 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Allegiant Travel’s $3.27 billion in total assets, the debt-ratio is at 0.46. Generally speaking, a debt-ratio more than one 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 35% might be higher for one industry and 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.