The Dark Knight’s Debt
According to Black Knight’s most recent balance sheet, released November 9, 2020, total debt stands at $2.30 billion, with $2.23 billion in long-term debt and $76.50 million in current debt. After adjusting for $31.20 million in cash equivalents, the company has net debt of $2.27 billion.
Let’s define some of the terms we used in the paragraph above. Current debt is the portion of a company’s debt that is due within one year, while long-term debt is the portion due in more than one year. Cash equivalents include cash and all liquid securities with maturities of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.
To understand how leveraged a company is, investors look at the debt-to-equity ratio. Considering Black Knight’s total assets of $6.15 billion, the leverage ratio is 0.37. Typically, a leverage ratio greater than one indicates that a significant portion of debt is asset-funded. A higher debt-to-equity ratio may also imply that the company could be at risk of default if interest rates were to rise. However, debt ratios vary widely from industry to industry. A debt ratio of 25% may be higher for one industry and average for another.
Why do investors watch debt?
Debt is an important factor in a company’s capital structure and can help it achieve growth. Debt typically has a relatively lower cost of funding than equity, making it an attractive option for executives.
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 business operations, allowing shareholders to retain excess profits generated by debt capital.
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