(Benzinga) – Over the past three months, shares of Norwegian Cruise Line (NYSE: NCLH) fell by 10.96%. Before we understand the importance of debt, let us look at how much debt Norwegian Cruise Line has.
Norwegian Cruise Line’s Debt
According to the Norwegian Cruise Line’s most recent balance sheet as reported on August 10, 2020, total debt is at $10.35 billion, with $10.01 billion in long-term debt and $337.34 million in current debt. Adjusting for $2.26 billion in cash-equivalents, the company has a net debt of $8.09 billion.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Norwegian Cruise Line has $17.53 billion in total assets, therefore making the debt-ratio 0.59. 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 35% might be higher for one industry and normal for another.
Why Debt Is Important
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, interest-payment obligations can have an adverse impact on the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.