Over the past three months, shares of Limoneira (NASDAQ:LMNR) moved lower by 1.50%. Before we understand the importance of debt, let us look at how much debt Limoneira has.
Based on Limoneira’s balance sheet as of September 8, 2021, long-term debt is at $120.94 million and current debt is at $2.24 million, amounting to $123.17 million in total debt. Adjusted for $775.00 thousand in cash-equivalents, the company’s net debt is at $122.40 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. Limoneira has $388.27 million in total assets, therefore making the debt-ratio 0.32. 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 40% might be higher for one industry and average for another.
Why Shareholders Look At Debt?
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, 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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