Over the past three months, shares of Domino's Pizza DPZ increased by 11.12%. Before we understand the importance of debt, let us look at how much debt Domino's Pizza has.
Domino's Pizza's Debt
According to the Domino's Pizza's most recent balance sheet as reported on July 22, 2021, total debt is at $4.12 billion, with $4.12 billion in long-term debt and $2.85 million in current debt. Adjusting for $168.82 million in cash-equivalents, the company has a net debt of $3.95 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. Domino's Pizza has $1.57 billion in total assets, therefore making the debt-ratio 2.63. 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 average 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.
However, due to interest-payment obligations, cash-flow of a company can be impacted. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.
Looking for stocks with low debt-to-equity ratios? Check out Benzinga Pro, a market research platform which provides investors with near-instantaneous access to dozens of stock metrics - including debt-to-equity ratio. Click here to learn more.
© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.