Shares of Leggett & Platt (NYSE:LEG) moved lower by 10.65% in the past three months. Before we understand the importance of debt, let us look at how much debt Leggett & Platt has.
Leggett & Platt's Debt
According to the Leggett & Platt's most recent balance sheet as reported on November 5, 2021, total debt is at $2.07 billion, with $1.77 billion in long-term debt and $300.40 million in current debt. Adjusting for $234.70 million in cash-equivalents, the company has a net debt of $1.83 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. Leggett & Platt has $5.24 billion in total assets, therefore making the debt-ratio 0.39. 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 40% might be higher for one industry and average for another.
Importance Of Debt
Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.
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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