Market Overview

A Look Into Target's Debt

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Shares of Target (NYSE: TGT) increased by 34.74% in the past three months. Before having a look at the importance of debt, let us look at how much debt Target has.

Target's Debt

Based on Target’s financial statement as of August 28, 2020, long-term debt is at $14.19 billion and current debt is at $109.00 million, amounting to $14.30 billion in total debt. Adjusted for $7.28 billion in cash-equivalents, the company's net debt is at $7.01 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Target’s $48.00 billion in total assets, the debt-ratio is at 0.3. 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 40% might be higher for one industry and average for another.

Importance Of 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. 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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