What Does CDK Global's Debt Look Like?

 

Shares of CDK Global CDK fell by 1.84% in the past three months. Before having a look at the importance of debt, let us look at how much debt CDK Global has.

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CDK Global's Debt

Based on CDK Global's financial statement as of November 3, 2021, long-term debt is at $1.59 billion and current debt is at $4.80 million, amounting to $1.59 billion in total debt. Adjusted for $80.80 million in cash-equivalents, the company's net debt is at $1.51 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, shareholders look at the debt ratio. Considering CDK Global's $2.64 billion in total assets, the debt-ratio is at 0.6. 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 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. 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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