Benzinga | Aug 7, 2020 09:32AM EDT

A Look Into Huttig Building Products's Debt

Shares of Huttig Building Products Inc. (NASDAQ:HBP) increased by 96.72% in the past three months. Before we understand the importance of debt, let's look at how much debt Huttig Building Products has.

Huttig Building Products's Debt

Based on Huttig Building Products's balance sheet as of August 4, 2020, long-term debt is at $125.60 million and current debt is at $1.70 million, amounting to $127.30 million in total debt. Adjusted for $1.80 million in cash-equivalents, the company's net debt is at $125.50 million.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Huttig Building Products's $288.20 million in total assets, the debt-ratio is at 0.44. As a rule of thumb, a debt-ratio more than 1 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. 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.

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.