What is Activision Blizzard Cost of Debt?
As a leading video game company, Activision Blizzard has a significant amount of debt that it uses to finance its operations and growth initiatives. In this article, we will delve into the cost of debt for Activision Blizzard, a crucial metric for investors and analysts to understand the company’s financial health.
What is Cost of Debt?
Cost of debt, also known as the weighted average cost of capital (WACC), is the average interest rate that a company pays on its outstanding debt. It is calculated by multiplying the outstanding debt by its corresponding interest rate, and then dividing the total by the total debt.
Activision Blizzard’s Cost of Debt
As of December 2022, Activision Blizzard’s interest expense was $108 million, and its total book value of debt was $3.609 billion. Using these figures, we can calculate the cost of debt as follows:
Cost of Debt = Interest Expense / Total Book Value of Debt
= $108 million / $3.609 billion
= 2.9921%
This means that Activision Blizzard pays an average interest rate of 2.9921% on its outstanding debt. This is a relatively low cost of debt compared to other companies in the same industry.
Breakdown of Activision Blizzard’s Debt
Activision Blizzard’s debt can be broken down into two main categories: short-term debt and long-term debt.
Short-Term Debt
- Current Portion of Long-Term Debt: $1.355 billion
- Short-Term Debt: $644 million
Long-Term Debt
- Term Loan: $1.311 billion
- Senior Notes: $1.254 billion
Cost of Short-Term Debt
- Current Portion of Long-Term Debt: 3.25%
- Short-Term Debt: 4.5%
Cost of Long-Term Debt
- Term Loan: 4.25%
- Senior Notes: 5.5%
Why is Activision Blizzard’s Cost of Debt Important?
Activision Blizzard’s cost of debt is important because it reflects the company’s ability to generate profits from its debt obligations. A low cost of debt indicates that the company can borrow money at a relatively low interest rate, which can be used to finance its operations and growth initiatives. On the other hand, a high cost of debt can increase the company’s financial risks and reduce its ability to generate profits.
Conclusion
In conclusion, Activision Blizzard’s cost of debt is an important metric that reflects the company’s ability to generate profits from its debt obligations. With a cost of debt of 2.9921%, the company has a relatively low cost of debt compared to other companies in the same industry. This suggests that Activision Blizzard has a strong ability to borrow money at a relatively low interest rate, which can be used to finance its operations and growth initiatives.