Shares of RPM International RPM increased by 16.47% in the past three months. Before having a look at the importance of debt, let us look at how much debt RPM International has.
RPM International's Debt
According to the RPM International’s most recent balance sheet as reported on July 27, 2020, total debt is at $2.54 billion, with $2.46 billion in long-term debt and $80.89 million in current debt. Adjusting for $233.42 million in cash-equivalents, the company has a net debt of $2.31 billion.
Investors look at the debt-ratio to understand how much financial leverage a company has. RPM International has $5.63 billion in total assets, therefore making the debt-ratio 0.45. 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 normal 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.
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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