Tapestry: Debt Overview

Over the past three months, shares of Tapestry Inc. TPR moved higher by 29.78%. Before having a look at the importance of debt, let's look at how much debt Tapestry has.

Tapestry's Debt

According to the Tapestry’s most recent financial statement as reported on May 6, 2020, total debt is at $1.60 billion, with $1.59 billion in long-term debt and $11.50 million in current debt. Adjusting for $742.60 million in cash-equivalents, the company has a net debt of $856.10 million.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Tapestry’s $7.74 billion in total assets, the debt-ratio is at 0.21. 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 40% might be higher for one industry, whereas average for another.

Why Shareholders Look At 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.