A Look Into Hewlett Packard Enterprise's Debt

Shares of Hewlett Packard Enterprise HPE moved higher by 3.07% in the past three months. Before we understand the importance of debt, let's look at how much debt Hewlett Packard has.

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Hewlett Packard's Debt

According to the Hewlett Packard’s most recent financial statement as reported on June 2, 2020, total debt is at $16.91 billion, with $11.55 billion in long-term debt and $5.36 billion in current debt. Adjusting for $5.13 billion in cash-equivalents, the company has a net debt of $11.78 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Hewlett Packard has $54.52 billion in total assets, therefore making the debt-ratio 0.31. 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?

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, due to interest-payment obligations, cash-flow of a company can be impacted. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.