Market Overview

A Look Into Lincoln Electric's Debt


Shares of Lincoln Electric Holdings Inc. (NASDAQ: LECO) moved higher by 13.69% in the past three months. Before we understand the importance of debt, let's look at how much debt Lincoln Electric Holdings has.

Lincoln Electric Holdings's Debt

Based on Lincoln Electric Holdings’s financial statement as of April 27, 2020, long-term debt is at $715.95 million and current debt is at $132.38 million, amounting to $848.33 million in total debt. Adjusted for $163.38 million in cash-equivalents, the company's net debt is at $684.95 million.

Investors look at the debt-ratio to understand how much financial leverage a company has. Lincoln Electric Holdings has $2.31 billion in total assets, therefore making the debt-ratio 0.37. 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 35% 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, interest-payment obligations can have an adverse impact on 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.


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