Shares of Emerson Electric Inc. EMR increased by 2.85% in the past three months. Before having a look at the importance of debt, let's look at how much debt Emerson Electric has.
Emerson Electric Debt
Based on Emerson Electric's balance sheet as of November 14, 2022, long-term debt is at $8.26 billion and current debt is at $2.12 billion, amounting to $10.37 billion in total debt. Adjusted for $1.80 billion in cash-equivalents, the company's net debt is at $8.57 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 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.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Emerson Electric has $35.67 billion in total assets, therefore making the debt-ratio 0.29. 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. For example, a debt ratio of 25% might be higher for one industry, but normal 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.
Interest-payment obligations can impact the cash-flow of the company. 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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This article was generated by Benzinga's automated content engine and reviewed by an editor.
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