What Does GMS Debt Look Like?

Over the past three months, shares of GMS GMS increased by 15.76%. Before we understand the importance of debt, let us look at how much debt GMS has.

GMS's Debt

Based on GMS's financial statement as of June 24, 2021, long-term debt is at $932.41 million and current debt is at $46.02 million, amounting to $978.43 million in total debt. Adjusted for $167.01 million in cash-equivalents, the company's net debt is at $811.41 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.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. GMS has $2.48 billion in total assets, therefore making the debt-ratio 0.39. 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

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.

However, interest-payment obligations can have an adverse impact on 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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