Over the past three months, shares of Hillenbrand (NYSE:HI) decreased by 4.11%. Before having a look at the importance of debt, let us look at how much debt Hillenbrand has.
Hillenbrand's Debt
Based on Hillenbrand's balance sheet as of February 2, 2022, long-term debt is at $1.21 billion and current debt is at $0.00, amounting to $1.21 billion in total debt. Adjusted for $447.40 million in cash-equivalents, the company's net debt is at $766.00 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 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.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Hillenbrand has $3.99 billion in total assets, therefore making the debt-ratio 0.3. As a rule of thumb, a debt-ratio more than one 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 and normal for another.
Importance Of 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, 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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