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A Look Into Church & Dwight's Debt

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Over the past three months, shares of Church & Dwight Co (NYSE:CHD) moved lower by 5.59%. 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

Based on Church & Dwight Co's balance sheet as of October 29, 2020, long-term debt is at $1.81 billion and current debt is at $1.60 million, amounting to $1.81 billion in total debt. Adjusted for $549.10 million in cash-equivalents, the company's net debt is at $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.

Investors look at the debt-ratio to understand how much financial leverage a company has. Church & Dwight Co has $7.08 billion in total assets, therefore making the debt-ratio 0.26. 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 25% might be higher for one industry and normal for another.

Why Debt Is Important

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.

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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A Look Into Church & Dwight Co's Debt
A Look Into Church & Dwight Co's Debt

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