Over the past three months, shares of Schlumberger (NYSE:SLB) decreased by 16.51%. Before having a look at the importance of debt, let us look at how much debt Schlumberger has.
Based on Schlumberger’s financial statement as of July 29, 2020, long-term debt is at $16.76 billion and current debt is at $603.00 million, amounting to $17.37 billion in total debt. Adjusted for $1.46 billion in cash-equivalents, the company's net debt is at $15.90 billion.
Investors look at the debt-ratio to understand how much financial leverage a company has. Schlumberger has $44.67 billion in total assets, therefore making the debt-ratio 0.39. As a rule of thumb, a debt-ratio more than one 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. A debt ratio of 40% might be higher for one industry and normal for another.
Why Investors Look At 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.
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.