A Look Into Tapestry's Debt

Shares of Tapestry TPR increased by 27.28% in the past three months. Before having a look at the importance of debt, let us look at how much debt Tapestry has.

Tapestry's Debt

According to the Tapestry’s most recent financial statement as reported on August 13, 2020, total debt is at $2.30 billion, with $1.59 billion in long-term debt and $711.50 million in current debt. Adjusting for $1.43 billion in cash-equivalents, the company has a net debt of $873.10 million.

Investors look at the debt-ratio to understand how much financial leverage a company has. Tapestry has $7.92 billion in total assets, therefore making the debt-ratio 0.29. Generally speaking, a debt-ratio more than one 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. A debt ratio of 25% might be higher for one industry and 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.

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.