Market Overview

A Look Into Whirlpool's Debt

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Shares of Whirlpool (NYSE: WHR) moved higher by 25.95% in the past three months. Before having a look at the importance of debt, let us look at how much debt Whirlpool has.

Whirlpool's Debt

Based on Whirlpool’s balance sheet as of July 23, 2020, long-term debt is at $4.89 billion and current debt is at $2.01 billion, amounting to $6.90 billion in total debt. Adjusted for $2.55 billion in cash-equivalents, the company's net debt is at $4.35 billion.

Let's define some of the terms we used in the paragraph above. Current debt is the portion of a company's debt which is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents include cash and any liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Whirlpool has $18.68 billion in total assets, therefore making the debt-ratio 0.37. As a rule of thumb, a debt-ratio more than one indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. A debt ratio of 25% might be higher for one industry and average 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.

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