Benzinga | Sep 9, 2020 08:53AM EDT

How Does Thor Industries's Debt Look?

Shares of Thor Industries (NYSE:THO) fell by 16.92% in the past three months. Before we understand the importance of debt, let us look at how much debt Thor Industries has.

Thor Industries's Debt

Based on Thor Industries's financial statement as of June 8, 2020, long-term debt is at $1.97 billion and current debt is at $252.26 million, amounting to $2.22 billion in total debt. Adjusted for $651.49 million in cash-equivalents, the company's net debt is at $1.57 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Thor Industries has $5.61 billion in total assets, therefore making the debt-ratio 0.4. 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 25% might be higher for one industry and average 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.