Benzinga | Aug 26, 2020 09:44AM EDT

How Does Nordstrom's Debt Look?

Over the past three months, shares of Nordstrom Inc. (NYSE:JWN) decreased by 13.38%. Before we understand the importance of debt, let's look at how much debt Nordstrom has.

Nordstrom's Debt

According to the Nordstrom's most recent balance sheet as reported on June 10, 2020, total debt is at $4.06 billion, with $3.26 billion in long-term debt and $800.00 million in current debt. Adjusting for $1.35 billion in cash-equivalents, the company has a net debt of $2.71 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Nordstrom has $9.97 billion in total assets, therefore making the debt-ratio 0.41. 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 25% might be higher for one industry, whereas normal 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.

Interest-payment obligations can impact 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.