Benzinga | Aug 20, 2020 07:44AM EDT

Ross Stores: Debt Overview

Over the past three months, shares of Ross Stores Inc. (NASDAQ:ROST) moved lower by 4.97%. Before having a look at the importance of debt, let's look at how much debt Ross Stores has.

Ross Stores's Debt

According to the Ross Stores's most recent financial statement as reported on June 10, 2020, total debt is at $3.09 billion, with $2.29 billion in long-term debt and $805.00 million in current debt. Adjusting for $2.67 billion in cash-equivalents, the company has a net debt of $421.08 million.

Investors look at the debt-ratio to understand how much financial leverage a company has. Ross Stores has $10.73 billion in total assets, therefore making the debt-ratio 0.29. Generally speaking, a debt-ratio more than 1 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. For example, a debt ratio of 35% might be higher for one industry, whereas normal for another.

Why Debt Is Important

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. 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.