What Does WD-40's Debt Look Like?

Shares of WD-40 WDFC rose by 8.98% in the past three months. Before having a look at the importance of debt, let us look at how much debt WD-40 has.

WD-40's Debt

Based on WD-40's financial statement as of April 8, 2021, long-term debt is at $116.73 million and current debt is at $800.00 thousand, amounting to $117.53 million in total debt. Adjusted for $72.38 million in cash-equivalents, the company's net debt is at $45.15 million.

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.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering WD-40's $405.99 million in total assets, the debt-ratio is at 0.29. 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 35% might be higher for one industry and average 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. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.

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