Shares of Newmark Group (NASDAQ:NMRK) decreased by 2.57% in the past three months. Before we understand the importance of debt, let us look at how much debt Newmark Group has.
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Newmark Group's Debt
Based on Newmark Group's balance sheet as of November 9, 2021, long-term debt is at $544.62 million and current debt is at $1.18 billion, amounting to $1.73 billion in total debt. Adjusted for $170.75 million in cash-equivalents, the company's net debt is at $1.56 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, investors look at the debt ratio. Considering Newmark Group's $5.33 billion in total assets, the debt-ratio is at 0.32. 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 35% might be higher for one industry and average for another.
Why Debt Is Important
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, interest-payment obligations can have an adverse impact on the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.
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