Benzinga | Sep 28, 2020 08:51AM EDT

Hologic's Debt Overview

Shares of Hologic (NASDAQ:HOLX) rose by 14.07% in the past three months. Before we understand the importance of debt, let us look at how much debt Hologic has.

Hologic's Debt

Based on Hologic's balance sheet as of July 29, 2020, long-term debt is at $2.75 billion and current debt is at $567.30 million, amounting to $3.32 billion in total debt. Adjusted for $744.20 million in cash-equivalents, the company's net debt is at $2.57 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Hologic's $6.80 billion in total assets, the debt-ratio is at 0.49. Generally speaking, a debt-ratio more than one 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. A debt ratio of 40% might be higher for one industry and normal 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.