Honeywell International's Debt Overview

Over the past three months, shares of Honeywell International Inc. HON increased by 13.38%. Before we understand the importance of debt, let's look at how much debt Honeywell International has.

Honeywell International's Debt

Based on Honeywell International’s financial statement as of July 24, 2020, long-term debt is at $17.59 billion and current debt is at $4.50 billion, amounting to $22.09 billion in total debt. Adjusted for $13.78 billion in cash-equivalents, the company's net debt is at $8.31 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Honeywell International has $63.60 billion in total assets, therefore making the debt-ratio 0.35. 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 35% might be higher for one industry, whereas normal 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. 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.