Shares of Domino’s Pizza (NYSE: DPZ) increased by 11.87% in the past three months. Before having a look at the importance of debt, let us look at how much debt Domino’s Pizza has.
Domino’s Pizza’s Debt
According to the Domino’s Pizza’s most recent balance sheet as reported on July 16, 2020, total debt is at $4.17 billion, with $4.13 billion in long-term debt and $43.00 million in current debt. Adjusting for $247.95 million in cash-equivalents, the company has a net debt of $3.92 billion.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Domino’s Pizza has $1.58 billion in total assets, therefore making the debt-ratio 2.64. 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 Shareholders Look At Debt?
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, due to interest-payment obligations, cash-flow of a company can be impacted. 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.
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.