Workday's Debt Overview

Over the past three months, shares of Workday Inc. WDAY moved higher by 35.27%. Before having a look at the importance of debt, let's look at how much debt Workday has.

Workday Debt

Based on Workday's financial statement as of November 29, 2022, long-term debt is at $2.97 billion and current debt is at $0, amounting to $2.97 billion in total debt. Adjusted for $1.58 billion in cash-equivalents, the company's net debt is at $1.40 billion.

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. Workday has $12.39 billion in total assets, therefore making the debt-ratio 0.24. 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 35% might be higher for one industry, but average for another.

Importance of 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.

However, due to interest-payment obligations, cash-flow of a company can be impacted. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.

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This article was generated by Benzinga's automated content engine and reviewed by an editor.