Over the past three months, shares of Coca-Cola Europacific Inc. CCEP moved higher by 18.08%. When understanding a companies price change over a time period like 3 months, it could be helpful to look at its financials. One key aspect of a companies financials is its debt, but before we understand the importance of debt, let's look at how much debt Coca-Cola Europacific has.
Coca-Cola Europacific Debt
According to the Coca-Cola Europacific's most recent balance sheet as reported on March 16, 2020, total debt is at $7.21 billion, with $6.31 billion in long-term debt and $897.04 million in current debt. Adjusting for $354.77 million in cash-equivalents, the company has a net debt of $6.85 billion.
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 includes 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, investors look at the debt ratio. Considering Coca-Cola Europacific's $20.98 billion in total assets, the debt-ratio is at 0.34. Generally speaking, a debt-ratio more than 1 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, but 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, 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.
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This article was generated by Benzinga's automated content engine and reviewed by an editor.
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