What Does Church & Dwight's Debt Look Like?
Shares of Church & Dwight Co (NYSE: CHD) fell by 6.58% in the past three months. Before having a look at the importance of debt, let us look at how much debt Church & Dwight Co has.
Church & Dwight Co's Debt
According to the Church & Dwight Co’s most recent balance sheet as reported on October 29, 2020, total debt is at $1.81 billion, with $1.81 billion in long-term debt and $1.60 million in current debt. Adjusting for $549.10 million in cash-equivalents, the company has a net debt of $1.26 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 Church & Dwight Co’s $7.08 billion in total assets, the debt-ratio is at 0.26. 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 25% might be higher for one industry and 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.
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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