Over the past three months, shares of Jakks Pacific Inc. JAKK decreased by 18.31%. Before we understand the importance of debt, let's look at how much debt Jakks Pacific has.
Jakks Pacific's Debt
Based on Jakks Pacific’s balance sheet as of May 15, 2020, long-term debt is at $169.40 million and current debt is at $1.91 million, amounting to $171.30 million in total debt. Adjusted for $39.47 million in cash-equivalents, the company's net debt is at $131.84 million.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Jakks Pacific has $276.91 million in total assets, therefore making the debt-ratio 0.62. 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.
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.
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