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A Look Into Emerson Electric's Debt

Benzinga Insights

Shares of Emerson Electric Inc. (NYSE: EMR) moved higher by 13.19% in the past three months. Before we understand the importance of debt, let's look at how much debt Emerson Electric has.

Emerson Electric's Debt

According to the Emerson Electric’s most recent financial statement as reported on April 24, 2020, total debt is at $7.70 billion, with $3.96 billion in long-term debt and $3.74 billion in current debt. Adjusting for $2.58 billion in cash-equivalents, the company has a net debt of $5.12 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Emerson Electric has $21.71 billion in total assets, therefore making the debt-ratio 0.35. 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 40% might be higher for one industry, whereas normal 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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