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.

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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.