A Look Into PepsiCo's Debt

Shares of PepsiCo (NASDAQ: PEP) moved higher by 3.89% in the past three months. Before we understand the importance of debt, let us look at how much debt PepsiCo has.

PepsiCo's Debt

Based on PepsiCo’s balance sheet as of October 1, 2020, long-term debt is at $37.88 billion and current debt is at $6.69 billion, amounting to $44.57 billion in total debt. Adjusted for $9.09 billion in cash-equivalents, the company's net debt is at $35.48 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering PepsiCo’s $92.04 billion in total assets, the debt-ratio is at 0.48. 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 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.

Interest-payment obligations can impact the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.