Over the past three months, the shares of Boot Barn Holdings NYSE: BOOT decreased by 12.15%. Before we understand the importance of debt, let us look at how much debt Boot Barn Holdings has.
Net debt is $27.29 million, adjusted for $39.55 million in cash-equivalents.
Let's define some of the terms we used in the paragraph above. The debt portion of a company's debt is due within 1 year, while the long-term debt portion is 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. Boot Barn Holdings has $1.04 billion in total assets, making the debt-ratio 0.06. A debt ratio more than one indicates that a large portion of debt is funded by assets. If interest rates are to increase, the company might be at risk for default if it increases its debt-ratio. Debt-ratios are different across industries, but they are not always the same. A debt ratio of 25% might be higher for one industry and average for another.
Debt is a key factor in the capital structure of a company, and contributes to its growth, as well as equity. It's an attractive option for executives who are trying to raise capital due to its lower financing cost compared to equity.
Interest-payment obligations can affect the cash flow of the company. Equity owners can keep excess profit when they use the debt capital for business operations, so they can keep it up with the debt capital.
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