Market Overview

A Look Into Costco Wholesale's Debt


Shares of Costco Wholesale Inc. (NASDAQ: COST) rose by 10.79% in the past three months. Before having a look at the importance of debt, let's look at how much debt Costco Wholesale has.

Costco Wholesale's Debt

Based on Costco Wholesale’s balance sheet as of June 4, 2020, long-term debt is at $7.60 billion and current debt is at $1.50 billion, amounting to $9.10 billion in total debt. Adjusted for $10.83 billion in cash-equivalents, the company's net debt is at $-1.73 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Costco Wholesale has $51.73 billion in total assets, therefore making the debt-ratio 0.18. 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. A debt ratio of 40% might be higher for one industry, whereas average 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.

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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