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Oracle Expects $21.8 Billion in Notes to Mature within 5 Years

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Factors influencing Oracle’s increased debt

Database management service provider Oracle (ORCL) has reported significant growth in its debt levels in the last five years. During this timeframe, its short-term and long-term debt increased at a CAGR (compound annual growth rate) of 33.0%. The company’s increased debt level has been triggered by higher product development costs and acquisitions.

To increase its market share in the cloud space, Oracle launched several products such as Fusion ERP (Enterprise Resource Planning) and HCM (Human Resource Management) in the cloud. In the last five years, the company invested nearly $20.0 billion in acquisitions.

Oracle’s robust capital return policy is also another factor in its increasing debt levels. In the last five years, Oracle returned nearly $54.0 billion to its investors through share buybacks and dividends.

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Detail analysis

From the graph above, we can see Oracle’s total debt levels since fiscal 2013. Its debt has increased steadily in that timeframe. The company exited fiscal 3Q18 with ~$60.0 billion in debt versus against $54.0 billion in fiscal 3Q17.

Oracle expects to see $21.8 billion in notes maturing in the next five years, which can pressure its cash flow and impact its expansion strategy in terms of new product launches and acquisitions. In the last five years, Oracle maintained a decent free cash flow of ~$13.1 billion per year, which can easily offset debt repayment pressure. In fiscal 3Q18, the company’s debt-to-total-capital ratio stood at 0.51, which is lower than IBM’s (IBM) 0.71 debt-to-total-capital ratio in its latest reported quarter.

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