Smart Global Holdings Inc (SGH)

Financial leverage ratio

		Aug 25, 2023	Aug 26, 2022	Aug 27, 2021	Aug 28, 2020	Aug 30, 2019
Total assets	US$ in thousands	1,505,960	1,572,060	1,344,800	786,608	704,137
Total stockholders’ equity	US$ in thousands	222,475	371,611	310,251	282,104	273,460
Financial leverage ratio		6.77	4.23	4.33	2.79	2.57

August 25, 2023 calculation

Financial leverage ratio = Total assets ÷ Total stockholders’ equity
= $1,505,960K ÷ $222,475K
= 6.77

The financial leverage ratio of SMART Global Holdings Inc has displayed an increasing trend over the past five years, rising from 2.57 in 2019 to 6.77 in 2023. This signifies that the company's reliance on debt in relation to its equity has escalated significantly during this period. The notable surge in the ratio between 2022 and 2023 indicates a substantial change in the company's capital structure, potentially indicating increased borrowing or a decrease in equity.

It is essential to acknowledge that a high financial leverage ratio suggests a higher level of financial risk, as the company is using more debt to finance its operations. While this can potentially magnify returns on equity, it also exposes the firm to a greater risk of insolvency or financial distress, particularly in periods of economic downturn.

Given the upward trajectory of the financial leverage ratio, investors and stakeholders may want to closely monitor SMART Global Holdings Inc's management of its debt levels and assess the associated risks to ensure the company's long-term financial stability and sustainability.