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What Does Toll Brothers's Debt Look Like?

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Over the past three months, shares of Toll Brothers Inc. (NYSE: TOL) rose by 46.39%. Before we understand the importance of debt, let's look at how much debt Toll Brothers has.

Toll Brothers's Debt

Based on Toll Brothers’s balance sheet as of June 8, 2020, long-term debt is at $4.22 billion and current debt is at $106.02 million, amounting to $4.32 billion in total debt. Adjusted for $741.22 million in cash-equivalents, the company's net debt is at $3.58 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Toll Brothers’s $10.81 billion in total assets, the debt-ratio is at 0.4. 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 25% 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.

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.

 

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