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Shares of Leggett & Platt Inc. LEG decreased by 2.17% in the past three months. Before having a look at the importance of debt, let’s look at how much debt Leggett & Platt has.
Leggett & Platt Debt
Based on Leggett & Platt’s balance sheet as of November 3, 2022, long-term debt is at $2.13 billion and current debt is at $7.40 million, amounting to $2.14 billion in total debt. Adjusted for $226.20 million in cash-equivalents, the company’s net debt is at $1.91 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 includes 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 $5.18 billion in total assets, therefore making the debt-ratio 0.41. Generally speaking, a debt-ratio more than 1 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. For example, a debt ratio of 35% might be higher for one industry, but normal 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. 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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This article was generated by Benzinga’s automated content engine and reviewed by an editor.
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