Over the past three months, shares of Baidu Inc. BIDU fell 19.65%. Before we take a look at what debt means, let’s look at how much Baidu owes.

Baidu Debt

According to Baidu’s latest balance sheet, reported on March 22, 2023, the total debt is US$12.14 billion, of which US$9.16 billion is long-term debt and US$2.98 billion is current Debts. Adjusted for $7.71 billion in cash, the company has net debt of $4.43 billion.

Let’s define some of the terms we used in the paragraph above. Current Debt is that portion of a company’s debt that falls due within one year, during Long-term liabilities is the portion due in more than 1 year. cash equivalents includes cash and all liquid securities with maturities of 90 days or less. total debt equals current liabilities plus non-current liabilities minus cash equivalents.

To understand a company’s level of financial leverage, investors look at the leverage ratio. Taking into account Baidu’s total assets of $56.69 billion, the debt ratio is 0.21. As a rule of thumb, a debt ratio greater than 1 indicates that a significant portion of the debt is funded by assets. Higher leverage can also mean that the company faces default risk if interest rates rise. However, leverage ratios vary widely across different industries. For example, a 35% debt ratio may be higher for one industry but normal for another.

Why do investors consider debt?

In addition to equity, borrowed capital is an important factor in the capital structure of a company and contributes to its growth. The lower cost of financing compared to equity makes it an attractive option for executives trying to raise capital.

Interest payment obligations may affect the company’s cash flow. Shareholders can keep excess profits from the debt if companies use the debt for their operations.

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