What Does Houghton Mifflin Harcourt's Debt Look Like?

Over the past three months, shares of Houghton Mifflin Harcourt HMHC moved higher by 28.67%. Before we understand the importance of debt, let us look at how much debt Houghton Mifflin Harcourt has.

Houghton Mifflin Harcourt's Debt

Based on Houghton Mifflin Harcourt’s balance sheet as of August 6, 2020, long-term debt is at $631.43 million and current debt is at $129.75 million, amounting to $761.18 million in total debt. Adjusted for $138.82 million in cash-equivalents, the company's net debt is at $622.35 million.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Houghton Mifflin Harcourt’s $2.17 billion in total assets, the debt-ratio is at 0.35. 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 35% might be higher for one industry and normal for another.

Importance Of 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, 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.