Deere's Debt Overview

Over the past three months, shares of Deere Inc. DE increased by 31.05%. Before we understand the importance of debt, let's look at how much debt Deere has.

Deere's Debt

According to the Deere’s most recent balance sheet as reported on May 28, 2020, total debt is at $50.14 billion, with $38.96 billion in long-term debt and $11.18 billion in current debt. Adjusting for $8.90 billion in cash-equivalents, the company has a net debt of $41.24 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Deere has $77.33 billion in total assets, therefore making the debt-ratio 0.65. 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 40% might be higher for one industry, whereas normal for another.

Why Debt Is Important

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.

However, interest-payment obligations can have an adverse impact on 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.