Over the past three months, shares of Camping World Holdings (NYSE:CWH) decreased by 25.33%. Before having a look at the importance of debt, let us look at how much debt Camping World Holdings has.
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Camping World Holdings's Debt
According to the Camping World Holdings's most recent balance sheet as reported on November 3, 2021, total debt is at $1.69 billion, with $1.14 billion in long-term debt and $548.13 million in current debt. Adjusting for $132.79 million in cash-equivalents, the company has a net debt of $1.55 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.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Camping World Holdings's $3.79 billion in total assets, the debt-ratio is at 0.45. As a rule of thumb, a debt-ratio more than one indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. A debt ratio of 35% might be higher for one industry and average for another.
Why Shareholders 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.
Interest-payment obligations can impact the cash-flow of the company. 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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