A Look Into Kroger's Debt

Over the past three months, shares of Kroger KR moved higher by 11.46%. Before having a look at the importance of debt, let us look at how much debt Kroger has.

Kroger's Debt

Based on Kroger's financial statement as of December 10, 2021, long-term debt is at $12.67 billion and current debt is at $1.05 billion, amounting to $13.72 billion in total debt. Adjusted for $2.29 billion in cash-equivalents, the company's net debt is at $11.43 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, shareholders look at the debt ratio. Considering Kroger's $49.83 billion in total assets, the debt-ratio is at 0.28. 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.

Why Shareholders Look At 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. 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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