A Look Into Marriott's Debt

Over the past three months, shares of Marriott Intl MAR moved higher by 11.15%. Before we understand the importance of debt, let us look at how much debt Marriott Intl has.

Marriott Intl's Debt

Based on Marriott Intl’s financial statement as of August 10, 2020, long-term debt is at $10.13 billion and current debt is at $1.67 billion, amounting to $11.80 billion in total debt. Adjusted for $2.28 billion in cash-equivalents, the company's net debt is at $9.52 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Marriott Intl’s $25.68 billion in total assets, the debt-ratio is at 0.46. 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 average for another.

Importance Of Debt

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.

However, interest-payment obligations can have an adverse impact on the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.