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Shares of Cal-Maine Foods Inc. (NASDAQ: CALM) fell by 9.25% in the past three months. Before having a look at the importance of debt, let's look at how much debt Cal-Maine Foods has.
Cal-Maine Foods's Debt
Based on Cal-Maine Foods’s balance sheet as of July 20, 2020, long-term debt is at $652.00 thousand and current debt is at $205.00 thousand, amounting to $857.00 thousand in total debt. Adjusted for $78.13 million in cash-equivalents, the company's net debt is at $-77.27 million.
Investors look at the debt-ratio to understand how much financial leverage a company has. Cal-Maine Foods has $1.21 billion in total assets, therefore making the debt-ratio 0.0. 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, whereas normal 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.
Interest-payment obligations can impact 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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