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Over the past three months, shares of L Brands Inc. (NYSE:LB) increased by 68.94%. Before we understand the importance of debt, let's look at how much debt L Brands has.
L Brands's Debt
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Based on L Brands’s financial statement as of June 3, 2020, long-term debt is at $5.03 billion and current debt is at $468.00 million, amounting to $5.50 billion in total debt. Adjusted for $957.00 million in cash-equivalents, the company's net debt is at $4.54 billion.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering L Brands’s $9.44 billion in total assets, the debt-ratio is at 0.58. As a rule of thumb, a debt-ratio more than 1 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 25% might be higher for one industry, whereas average for another.
Importance of 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. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.