Benzinga | Sep 4, 2020 07:36AM EDT

What Does Fuwei Films's Debt Look Like?

Shares of Fuwei Films (Holdings) Co Inc. (NASDAQ:FFHL) moved higher by 149.41% in the past three months. Before we understand the importance of debt, let's look at how much debt Fuwei Films (Holdings) Co has.

Fuwei Films (Holdings) Co's Debt

According to the Fuwei Films's most recent financial statement as reported on April 9, 2015, total debt is at $18.39 million, with $1.12 million in long-term debt and $17.27 million in current debt. Adjusting for $1.45 million in cash-equivalents, the company has a net debt of $16.94 million.

Investors look at the debt-ratio to understand how much financial leverage a company has. Fuwei Films has $108.46 million in total assets, therefore making the debt-ratio 0.17. 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. For example, a debt ratio of 35% might be higher for one industry, whereas normal for another.

Why Investors Look At 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.

Interest-payment obligations can impact 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.