How Does Fastenal's Debt Look?

Over the past three months, shares of Fastenal FAST increased by 6.85%. Before we understand the importance of debt, let us look at how much debt Fastenal has.

Fastenal's Debt

Based on Fastenal's financial statement as of April 16, 2021, long-term debt is at $365.00 million and current debt is at $40.00 million, amounting to $405.00 million in total debt. Adjusted for $333.90 million in cash-equivalents, the company's net debt is at $71.10 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 Fastenal's $4.07 billion in total assets, the debt-ratio is at 0.1. 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

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, due to interest-payment obligations, cash-flow of a company can be impacted. 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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