Roku Total Debt, Liquidity, Debt Rating And Equity Ratio

TV streaming. Pixabay Image.

This article covers the debt and liquidity of Roku, Inc. (NASDAQ:ROKU).

For debt, we will explore several measurements which include the net debt, debt-to-equity, and debt-to-asset ratios as well as the interest coverage ratio.

For liquidity, we will go over Roku’s debt maturities and payments due as well as the company’s sources of liquidity.

In this aspect, Roku’s ability to repay its debt or any amounts owed will be investigated.

Finally, we will find out the credit rating of Roku to see how rating institutions rate the company’s debt.

Without further elaboration, let’s start with the following topics!

Total Debt

roku-total-debt

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As of 2Q 2023, Roku already repaid all prior borrowings and carried no debt.

Even before fiscal 2023, Roku carried very little to no debt.

The largest total debt that Roku ever had totaled only $100 million and the company already repaid all of the amount owed.

Therefore, Roku had no debt as of 2Q 2023.

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Total Debt And Leases

roku-total-debt-and-leases

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Although Roku had no debt as of 2Q 2023, the company did carry a significant amount of leases, and it totaled $648 million in the same period.

Of this amount, roughly $59 million was categorized as the current portion, which means that it will be due within a year starting from 2Q 2023.

A trend worth pointing out is the growing amount of leases that Roku has carried over the years.

If you add up Roku’s debt and leases which is shown in the plot above, the total amount that the company owes can be quite significant.

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Total Cash

roku-total-cash

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Apart from debt, Roku also carries quite a significant amount of cash.

As of 2Q 2023, Roku’s total cash amounted to $1.8 billion USD, a decline of 10% over 2022 and 14% over 2021 but was considerably higher than the amount reported in 2020.

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Total Debt And Leases Less Total Cash

roku-net-debt

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Roku’s net debt has been mostly negative due to the higher amount of cash than debt and leases.

As seen in prior discussions, Roku carries a significantly large amount of cash and the number is much higher than the respective debt and leases.

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Debt To Equity Ratio

roku-debt-to-equity-ratio

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Roku’s total amount of debt and leases represent only 25.6% of the company’s equity as of 2Q 2023, a considerably low leverage in my opinion.

The majority of this ratio is contributed by leases in most fiscal years.

Without leases, Roku’s debt-to-equity ratio would be very little.

In addition, Roku’s debt-to-equity ratio also has been on the decline over the years, largely driven by the company’s no-debt policy and the repayments of debt.

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Debt To Asset Ratio

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The debt-to-asset ratio reflects Roku’s capital structure, also known as the debt structure.

As of fiscal 2Q 2023, Roku’s total debt and leases accounted for only 15.6% of the company’s total assets, suggesting that debt and leases made up only a small portion of the company’s capital structure.

Similarly, the majority of this ratio is contributed by leases in most fiscal years.

Without leases, Roku’s debt leverage with respect to total assets would be even smaller.

This ratio also has declined considerably over the years, suggesting that the company borrows little to no debt and has repaid most of the debt owed.

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Interest Expense

roku-interest-expenses

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Since Roku has not had that much debt, it has very little interest expenses.

The majority of the interest expense, I believe, comes from leases as leases are much larger than debt which we saw in prior discussions.

As of fiscal 2022, Roku’s interest expense totaled $5 million USD, the largest amount that had ever been recorded in the past 7 years.

Despite the significantly higher interest expense in fiscal 2022, the amount was negligible compared to the $1.8 billion of cash the company held in its balance sheets as of 2Q 2023.

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Interest Expenses To Operating Income Ratio

roku-interest-expenses-to-operating-income-ratio

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For your information, Roku has made little to no profit all these years, according to this article – Roku Profit And Margin.

As a result, Roku has not been able to cover the interest expenses with its operating income irrespective of how small the numbers are.

As shown in the chart above, most of Roku’s interest coverage ratios are negative, due primarily to the negative operating income.

In some fiscal years when Roku generated positive operating income, the respective interest coverage ratio totaled only a few percentage points, indicating the tiny amount of incurred interest expenses by the company.

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Interest Expenses To Adjusted EBITDA Ratio

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Similar to the operating income, Roku makes little to no adjusted EBITDA.

Therefore, with respect to the adjusted EBITDA, Roku has not been able to cover the interest expenses in most fiscal years.

For fiscal years with positive adjusted EBITDA, the interest coverage ratio came in at only a few percentage points, illustrating the small amount of interest expenses with respect to the adjusted EBITDA.

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Payment Due

Roku Inc.’s payments due figures are based on the 2Q 2023 quarterly report dated 30 June 2023.

Types Of Payments	Amount Due In Million Of USD
	2023 (July To Dec)	2024	2025	Thereafter
Operating Leases	$37	$87	$95	$549
Debt	$0	$0	$0	$0
Manufacturing Purchase Commitments	$30	$60	$60	$30
Content Commitments	$135	$118	$60	$32
Total	$202	$265	$215	$611

The table above shows Roku’s expected amount due in different years based on the types of debt and it needs to be paid in cash.

Some of these amounts may be off-balance sheets as they haven’t met the criteria for asset recognition.

All said, for the second half of 2023, the expected amount that comes due is estimated at $202 million.

This amount includes various types of debt such as leases, manufacturing purchase commitments, and content commitments.

For fiscal 2024, Roku’s expected amount that comes due is estimated at $265 million while a total sum of $215 million is expected to come due in fiscal 2025.

Between 2023 and 2025, Roku’s total amount that needs to be paid in cash is roughly $700 million USD.

Does Roku have sufficient liquidity to cover the expected payment due in the next 3 years?

We will find out in the next section.

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Sources Of Liquidity

Roku Inc.’s total liquidity data are based on the 2Q 2023 quarterly report dated 30 June 2023.

Sources Of Liquidity	USD In Millions
	Committed Capacity	Available Capacity
Cash & Cash Equivalents	–	$1,796
Letters Of Credit	–	$37.8
Annual Operating Cash Flow	–	$129.3 (estimated)
Total	–	$1,963.1

Roku Inc.’s sources of liquidity include cash and cash equivalents, letters of credit, and cash provided by operating activities.

Roku’s total liquidity is estimated at nearly $2 billion USD based on the 2Q 2023 quarterly report.

In the prior discussion, we saw that Roku’s expected cash payment between 2023 and 2025 is estimated at $700 million USD.

Since Roku has $2 billion in cash, the company’s liquidity should be able to pay for all payments due in the next 3 years until 2025.

Even without the operating cash flow, Roku’s cash and cash equivalents alone are able to cover all payments due between 2023 and 2025 and may even be enough to pay for the remaining $611 million of expected cash payment after 2025.

The following quote shows what Roku said about its liquidity in the 2Q 2023 quarterly report:

• “We believe our existing cash and cash equivalents balance will be sufficient to meet our working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months and beyond.”

In short, Roku Inc. has enough liquidity to meet all payment obligations all the way to fiscal 2025 and possibly beyond.

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Credit Rating

Roku Inc.’s credit rating as of 30 June 2023.

Rating Institutions	Types Of Indebtedness		Outlook
	Long-Term Debt	Short-Term Debt
Standard & Poor’s	N.A.	N.A.	N.A.
Moody’s	N.A.	N.A.	N.A.
Fitch	N.A.	N.A.	N.A.

As of 30 June 2023, Roku Inc. has not published any credit rating regarding its debt obligation in its 2023 2Q quarterly reports.

Besides, the company did not have any short-term or long-term debt obligations as of 2Q 2023.

Therefore, the matter of credit rating was not applicable at this moment.

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Conclusion

In summary, Roku Inc. had no debt but had lease obligations that totaled more than $600 million as of the end of fiscal 2Q 2023.

Despite the seemingly high lease obligation, Roku’s leverage with respect to assets and equity was low and had somewhat declined in the last several years.

Moreover, the company had cash and cash equivalents totaling $1.8 billion USD which should be sufficient to cover all payments due in the next 3 years.

In short, Roku had sufficient liquidity to meet all payment obligations until 2025 and possibly beyond.

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References and Credits

1. All financial figures presented in this article were obtained and referenced from Roku, Inc.’s SEC filings, earnings reports, financial statements, news releases, shareholder letters, etc., which are available at Roku Financial Results.

2. Featured images in this article are obtained free and are used without any attribution from Pixabay.

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Disclosure

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