A Look Into Performance Food Group's Debt

Over the past three months, shares of Performance Food Group Inc. PFGC moved higher by 39.68%. Before we understand the importance of debt, let's look at how much debt Performance Food Group has.

Performance Food Group's Debt

According to the Performance Food Group’s most recent financial statement as reported on May 5, 2020, total debt is at $3.40 billion, with $3.37 billion in long-term debt and $28.10 million in current debt. Adjusting for $372.10 million in cash-equivalents, the company has a net debt of $3.02 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Performance Food Group’s $7.87 billion in total assets, the debt-ratio is at 0.43. 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 35% might be higher for one industry, whereas normal for another.

Why Shareholders 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.

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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