Over the past three months, shares of Tiffany TIF decreased by 1.84%. Before having a look at the importance of debt, let us look at how much debt Tiffany has.
Based on Tiffany’s financial statement as of August 27, 2020, long-term debt is at $887.70 million and current debt is at $591.30 million, amounting to $1.48 billion in total debt. Adjusted for $1.04 billion in cash-equivalents, the company's net debt is at $435.30 million.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Tiffany has $6.86 billion in total assets, therefore making the debt-ratio 0.22. 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 normal for another.
Why Shareholders Look At Debt?
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, 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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