What Does Hewlett Packard Enterprise's Debt Look Like?

Over the past three months, shares of Hewlett Packard Enterprise Company HPE moved higher by 8.37%. Before we understand the importance of debt, let us look at how much debt Hewlett Packard has.

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Hewlett Packard's Debt

According to the Hewlett Packard's most recent financial statement as reported on March 4, 2021, total debt is at $15.93 billion, with $11.96 billion in long-term debt and $3.97 billion in current debt. Adjusting for $4.17 billion in cash-equivalents, the company has a net debt of $11.77 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.

Investors look at the debt-ratio to understand how much financial leverage a company has. Hewlett Packard has $53.45 billion in total assets, therefore making the debt-ratio 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 35% might be higher for one industry and average for another.

Why Debt Is Important

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, interest-payment obligations can have an adverse impact on 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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