A Look Into Walmart's Debt

Shares of Walmart Inc. WMT rose by 10.17% in the past three months. Before having a look at the importance of debt, let's look at how much debt Walmart has.

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Walmart's Debt

According to the Walmart’s most recent financial statement as reported on June 3, 2020, total debt is at $58.03 billion, with $47.48 billion in long-term debt and $10.55 billion in current debt. Adjusting for $14.93 billion in cash-equivalents, the company has a net debt of $43.10 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Walmart has $232.89 billion in total assets, therefore making the debt-ratio 0.25. 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 35% might be higher for one industry, whereas average for another.

Why Debt Is Important

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.