Market Overview

How Does HP's Debt Look?


Over the past three months, shares of HP Inc. (NYSE: HPQ) moved higher by 22.23%. Before we understand the importance of debt, let's look at how much debt HP has.

HP's Debt

According to the HP’s most recent financial statement as reported on June 5, 2020, total debt is at $5.49 billion, with $3.94 billion in long-term debt and $1.55 billion in current debt. Adjusting for $4.05 billion in cash-equivalents, the company has a net debt of $1.44 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering HP’s $33.77 billion in total assets, the debt-ratio is at 0.16. 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

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.


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