A Look Into Broadcom's Debt

Over the past three months, shares of Broadcom Inc. AVGO moved higher by 4.18%. Before having a look at the importance of debt, let's look at how much debt Broadcom has.

Broadcom Debt

Based on Broadcom's balance sheet as of March 8, 2023, long-term debt is at $38.17 billion and current debt is at $1.11 billion, amounting to $39.28 billion in total debt. Adjusted for $12.65 billion in cash-equivalents, the company's net debt is at $26.64 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.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Broadcom's $72.98 billion in total assets, the debt-ratio is at 0.54. 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 25% might be higher for one industry, but normal 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, 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.