Over the past three months, shares of Secoo Holding Inc. SECO decreased by 38.28%. Before having a look at the importance of debt, let's look at how much debt Secoo Holding has.
Secoo Holding Debt
Based on Secoo Holding's balance sheet as of May 13, 2022, long-term debt is at $211.54 million and current debt is at $5.17 million, amounting to $216.71 million in total debt. Adjusted for $24.50 million in cash-equivalents, the company's net debt is at $192.21 million.
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 includes 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 Secoo Holding's $701.58 million in total assets, the debt-ratio is at 0.31. As a rule of thumb, a debt-ratio more than 1 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 35% might be higher for one industry, but average for another.
Why Debt Is Important
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, 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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This article was generated by Benzinga's automated content engine and reviewed by an editor.
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