Shares of Stanley Black & Decker (NYSE:SWK) fell by 4.19% in the past three months. Before we understand the importance of debt, let us look at how much debt Stanley Black & Decker has.
Stanley Black & Decker's Debt
According to the Stanley Black & Decker's most recent financial statement as reported on November 12, 2021, total debt is at $4.40 billion, with $4.25 billion in long-term debt and $152.20 million in current debt. Adjusting for $292.70 million in cash-equivalents, the company has a net debt of $4.11 billion.
Let's define some of the terms we used in the paragraph above. Current debt is the portion of a company's debt which is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents include cash and any liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.
Investors look at the debt-ratio to understand how much financial leverage a company has. Stanley Black & Decker has $24.33 billion in total assets, therefore making the debt-ratio 0.18. Generally speaking, a debt-ratio more than one means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. A debt ratio of 25% might be higher for one industry and average for another.
Why Investors Look At Debt?
Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.
However, due to interest-payment obligations, cash-flow of a company can be impacted. Having financial leverage also allows companies to use additional capital for business operations, allowing equity owners to retain excess profit, generated by the debt capital.
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