Market Overview

How Does Deere's Debt Look?

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Over the past three months, shares of Deere Inc. (NYSE: DE) moved higher by 39.23%. Before we understand the importance of debt, let's look at how much debt Deere has.

Deere's Debt

Based on Deere’s balance sheet as of May 28, 2020, long-term debt is at $38.96 billion and current debt is at $11.18 billion, amounting to $50.14 billion in total debt. Adjusted for $8.90 billion in cash-equivalents, the company's net debt is at $41.24 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Deere’s $77.33 billion in total assets, the debt-ratio is at 0.65. As a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. A debt ratio of 25% might be higher for one industry, whereas average 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. Having financial leverage also allows companies to use additional capital for business operations, allowing equity owners to retain excess profit, generated by the debt capital.

 

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