Over the past three months, the actions of Coupa software (NASDAQ: COUP) fell 25.60%. Before we look at the importance of debt, let’s look at Coupa Software’s debt amount.
Coupa Software’s debt
Based on Coupa Software’s financial statements as of September 8, 2021, long-term debt stands at $ 933.44 million and current debt at $ 626.82 million, for a total of $ 1.56 billion. dollars. Adjusted for $ 432.01 million in cash equivalents, the company’s net debt stands at $ 1.13 billion.
Let’s define some of the terms we used in the paragraph above. Short-term debt is the portion of a company’s debt that is owed for less than one year, while long-term debt is the portion for more than one year. Cash equivalents include cash and all liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.
To understand a company’s degree of financial leverage, shareholders look at the debt ratio. Considering Coupa Software’s $ 3.09 billion in total assets, the debt ratio is 0.5. Generally speaking, a debt ratio greater than one means that a large part of the debt is financed with assets. As the debt ratio rises, the risk of default increases if interest rates were to rise. Different industries have different tolerance levels for debt ratios. A debt ratio of 40% may be higher for one industry and average for another.
Significance of debt
Debt is an important factor in the capital structure of a business and can help it achieve growth. Debt generally has a relatively lower cost of financing than equity, making it an attractive option for executives.
However, due to interest payment obligations, a company’s cash flow can be affected. Having financial leverage also allows companies to use additional capital for their business operations, allowing stock owners to keep excess profits generated by debt capital.
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