Apple filed a preliminary filing with the Securities and Exchange Commission on Thursday for a four-part debt offering that will comprise notes with maturities of 7, 10, 30, and 40 years. The size and timing of the offering were not disclosed by the corporation.
Apple (AAPL) currently owes $113.8 billion in long-term debt, including current maturities. The figure includes $14 billion raised in a February offering.
Does Amazon use debt financing?
Amazon has been a very uncommon issuer, but when it does, it makes a tremendous impact. It last borrowed money from the bond market in June 2020, when it took out a $10 billion loan for general corporate purposes. It had previously offered $16 billion in notes to help finance its acquisition of Whole Foods Market Inc. in 2017.
The money raised in Monday’s offering will be used for general company reasons, such as acquisitions and operating capital. According to the bond documents, the two-year bond will be used for approved green or social projects, such as clean transportation, renewable energy, and sustainable structures.
Amazon was raised by Moody’s Investors Service to A1, the fifth-highest investment-grade rating, with a stable outlook. Although the new debt offering momentarily boosts leverage, the funds are expected to be used for capital expenditures that fuel growth over time, according to Moody’s analyst Charles O’Shea, which is a long-term positive for the credit.
Since the outbreak, Amazon has been on a spending binge, constructing new warehouses and cloud-computing data centers around the world to accommodate rising demand from online buyers and businesses embracing remote work. Property and equipment purchases totaled $45 billion in the 12 months ending in March, up from $20 billion the previous year.
The board of directors of the corporation authorized $5 billion in share buybacks in 2016, although the company has never used that authority.
The sale was handled by Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, and Wells Fargo & Co.
This story was co-written by Bloomberg staff writers Alex Wittenberg and Caleb Mutua.
Does Disney have any debt?
Walt Disney had US$55.8 billion in debt in July 2021, down from US$64.4 billion the year before. On the other hand, it has US$16.1 billion in cash, resulting in a net debt of US$39.8 billion.
How Strong Is Walt Disney’s Balance Sheet?
Walt Disney has obligations of US$27.4 billion due within a year, and liabilities of US$74.2 billion due beyond that, according to the most recent balance sheet. It has $16.1 billion in cash and $13.4 billion in receivables due in the next 12 months to offset these liabilities. As a result, its liabilities exceed its cash and short-term receivables by $72.2 billion.
With a market value of US$315.2 billion, Walt Disney could easily raise cash to improve its balance sheet if the need arose.
However, it’s evident that we need to look into whether it can handle its debt without dilution.
We calculate a company’s net debt divided by its profits before interest, taxes, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense to determine how much debt it has in relation to its earnings (its interest cover).
This method has the advantage of accounting for both the total amount of debt (with net debt to EBITDA) and the actual interest expenses connected with that debt (with its interest cover ratio).
Weak interest cover of 1.7 times and an alarmingly high net debt to EBITDA ratio of 5.2 took a one-two blow to our faith in Walt Disney.
We’d classify it as having a high debt load in this case.
Worse worse, Walt Disney’s EBIT was down 62% year over year. If profits continue to rise at this rate in the long run, the debt will be paid off in a snowball’s chance in hell. The balance sheet, without a question, teaches us the most about debt. But, more than anything else, Walt Disney’s capacity to maintain a strong balance sheet in the future will be determined by future earnings. So, if you’re curious about what the experts say, this free study on analyst profit estimates might be of interest.
Finally, a business can only repay debt with cash, not accounting earnings. As a result, we constantly assess how much of that EBIT is converted into free cash flow. Walt Disney’s free cash flow amounted to 38 percent of its EBIT in the last three years, which is lower than we expected. Indebtedness becomes more difficult to manage as a result of the poor cash conversion.
Our View
On the surface, Walt Disney’s interest cover made us wary of the stock, and the company’s EBIT growth rate was no more attractive than one vacant restaurant on the biggest night of the year. But, at the very least, its total liabilities aren’t too awful. When we look at the larger picture, it’s evident that Walt Disney’s use of debt is putting the corporation at risk. If all goes well, this debt may pay off, but there is a bigger danger of irreversible losses with this debt. The balance sheet, without a question, teaches us the most about debt. However, the balance sheet does not contain all investment risk; much from it. For example, we’ve found one Walt Disney warning indicator that you should be aware of.
Check out our free list of growing businesses with net cash on the balance sheet if you’re looking to invest in organizations that can generate profits without taking on debt.
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How much debt is healthy?
You want your debt to be as minimal as possible so that you may be financially flexible in the event of an emergency as well as for your long-term goals. You’ve probably reached your debt limit if you’re having trouble making monthly payments. How much debt is excessive? Keep your debt-to-income ratio below 43%, according to the Consumer Financial Protection Bureau. People with debts of more than 43% have a hard time paying their monthly payments, according to statistics.
How much debt is good for a company?
This ratio is used to compare the amount of capital borrowed (debt) vs the amount contributed by shareholders (equity) in a corporation. When investing, look for companies with a debt-to-equity ratio of less than 0.5.
