Market Overview

A Look Into M.D.C. Holdings Debt

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Over the past three months, shares of M.D.C. Holdings (NYSE: MDC) rose by 27.85%. Before we understand the importance of debt, let us look at how much debt M.D.C. Holdings has.

M.D.C. Holdings's Debt

Based on M.D.C. Holdings’s financial statement as of July 28, 2020, long-term debt is at $1.05 billion and current debt is at $142.09 million, amounting to $1.19 billion in total debt. Adjusted for $544.92 million in cash-equivalents, the company's net debt is at $644.24 million.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. M.D.C. Holdings has $3.51 billion in total assets, therefore making the debt-ratio 0.34. 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.

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.

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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