Over the past three months, shares of R.R.Donnelley & Sons RRD increased by 89.86%. Before having a look at the importance of debt, let us look at how much debt R.R.Donnelley & Sons has.
R.R.Donnelley & Sons's Debt
Based on R.R.Donnelley & Sons's financial statement as of November 3, 2021, long-term debt is at $1.43 billion and current debt is at $79.30 million, amounting to $1.51 billion in total debt. Adjusted for $223.50 million in cash-equivalents, the company's net debt is at $1.29 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.
To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering R.R.Donnelley & Sons's $3.09 billion in total assets, the debt-ratio is at 0.49. 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 Investors 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. 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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