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What Does Ralph Lauren's Debt Look Like?

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Over the past three months, shares of Ralph Lauren Inc. (NYSE: RL) fell by 9.13%. Before having a look at the importance of debt, let's look at how much debt Ralph Lauren has.

Ralph Lauren's Debt

According to the Ralph Lauren’s most recent balance sheet as reported on August 4, 2020, total debt is at $1.93 billion, with $1.63 billion in long-term debt and $299.90 million in current debt. Adjusting for $2.45 billion in cash-equivalents, the company has a net debt of $-521.30 million.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Ralph Lauren’s $7.74 billion in total assets, the debt-ratio is at 0.25. 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.

Why Investors Look At 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.

However, due to interest-payment obligations, cash-flow of a company can be impacted. 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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