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Shares of Mohawk Group Holdings Inc. (NASDAQ:MWK) increased by 41.92% in the past three months. Before having a look at the importance of debt, let's look at how much debt Mohawk Gr Hldgs has.
Mohawk Gr Hldgs's Debt
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Based on Mohawk Gr Hldgs’s balance sheet as of July 31, 2020, long-term debt is at $7.72 million and current debt is at $24.17 million, amounting to $31.89 million in total debt. Adjusted for $17.19 million in cash-equivalents, the company's net debt is at $14.70 million.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Mohawk Gr Hldgs has $61.19 million in total assets, therefore making the debt-ratio 0.52. 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. A debt ratio of 40% might be higher for one industry, whereas 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, 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.
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.