Smart Global Holdings Inc (SGH)

Debt-to-capital ratio

		Aug 25, 2023	Aug 26, 2022	Aug 27, 2021	Aug 28, 2020	Aug 30, 2019
Long-term debt	US$ in thousands	754,820	—	340,484	195,573	182,450
Total stockholders’ equity	US$ in thousands	222,475	371,611	310,251	282,104	273,460
Debt-to-capital ratio		0.77	0.00	0.52	0.41	0.40

August 25, 2023 calculation

Debt-to-capital ratio = Long-term debt ÷ (Long-term debt + Total stockholders’ equity)
= $754,820K ÷ ($754,820K + $222,475K)
= 0.77

The debt-to-capital ratio measures the proportion of a company's capital that is financed by debt. It is calculated by dividing a company's total debt by its total capital (debt plus equity). A higher debt-to-capital ratio indicates greater financial risk, as the company is relying more on debt to finance its operations.

SMART Global Holdings Inc's debt-to-capital ratio has shown an increasing trend over the past five years, rising from 0.43 in August 2019 to 0.78 in August 2023. This indicates that the company has been relying more on debt as a source of financing relative to its total capital over this period.

The significant increase in the debt-to-capital ratio from 2022 to 2023 is noteworthy, suggesting a substantial change in the company's capital structure. This upward trend could be an indication of the company's strategy to use more debt financing for growth, acquisitions, or other investment opportunities.

From a credit risk perspective, the increase in the debt-to-capital ratio might be a concern for creditors and investors, as a higher ratio generally implies increased financial leverage and greater susceptibility to economic downturns or rising interest rates. However, it is essential to consider the company's overall financial health and the purpose for which the debt is being utilized.

In conclusion, the rising trend in SMART Global Holdings Inc's debt-to-capital ratio indicates a shift towards greater reliance on debt financing. This trend should be closely monitored to assess the impact on the company's financial risk and its ability to meet debt obligations in the future.