How Does L Brands Debt Look?

Shares of L Brands LB moved higher by 24.38% in the past three months. Before we understand the importance of debt, let us look at how much debt L Brands has.

L Brands's Debt

According to the L Brands's most recent financial statement as reported on March 19, 2021, total debt is at $6.37 billion, with $6.37 billion in long-term debt and $0.00 in current debt. Adjusting for $3.90 billion in cash-equivalents, the company has a net debt of $2.46 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 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, investors look at the debt ratio. Considering L Brands's $11.57 billion in total assets, the debt-ratio is at 0.55. 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.

Importance Of Debt

Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.

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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