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Home Depot's Debt Overview

Benzinga · 11/15/2022 15:07

Over the past three months, shares of Home Depot's Inc. (NYSE:HD) decreased by 2.83%. Before having a look at the importance of debt, let's look at how much debt Home Depot's has.

Home Depot's Debt

According to the Home Depot's's most recent financial statement as reported on August 23, 2022, total debt is at $41.03 billion, with $39.27 billion in long-term debt and $1.76 billion in current debt. Adjusting for $1.26 billion in cash-equivalents, the company has a net debt of $39.77 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. Home Depot's has $75.83 billion in total assets, therefore making the debt-ratio 0.54. 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 25% might be higher for one industry, but normal for another.

debt_fig

Why Debt Is Important

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.