Actions of BETTER (NYSE: BEST) has fallen 0.78% in the past three months. Before understanding the importance of debt, let’s take a look at the amount of BEST debt.
Based on BEST’s financial statements as of April 16, 2021, long-term debt is $ 358.39 thousand and current debt is $ 487.00 thousand, which represents a total debt of $ 845.39 thousand. of dollars. Adjusted by $ 212.00 thousand in cash equivalents, the Company’s net debt stands at $ 633.39 thousand.
Let’s define some of the terms we used in the paragraph above. Short-term debt is the portion of a company’s debt that matures within one year, while long-term debt is the portion over one year. Cash equivalents include cash and any liquid security with a maturity 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 a company’s financial leverage. BEST has total assets of $ 3.05 million, making the debt ratio of 0.28. Typically, a debt ratio greater than one indicates that a considerable amount of debt is financed by assets. A higher debt ratio can also mean that the company could default if interest rates were to rise. However, debt ratios vary considerably from sector to sector. A debt ratio of 40% may be higher for one industry and normal for another.
Why debt matters
Besides equity, debt is an important factor in a company’s capital structure and contributes to its growth. Due to its lower cost of financing compared to equity, it becomes an attractive option for executives trying to raise capital.
However, interest payment obligations can have a negative impact on the company’s cash flow. Having financial leverage also allows companies to use additional capital for their business operations, allowing stock owners to keep excess profits generated by debt capital.
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