Market Overview

Lockheed Martin's Debt Overview

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Over the past three months, shares of Lockheed Martin Inc. (NYSE: LMT) fell by 1.45%. Before having a look at the importance of debt, let's look at how much debt Lockheed Martin has.

Lockheed Martin's Debt

Based on Lockheed Martin’s balance sheet as of July 21, 2020, long-term debt is at $12.17 billion and current debt is at $500.00 million, amounting to $12.67 billion in total debt. Adjusted for $2.85 billion in cash-equivalents, the company's net debt is at $9.82 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Lockheed Martin has $49.60 billion in total assets, therefore making the debt-ratio 0.26. 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 40% might be higher for one industry, whereas 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. 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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