Over the past three months, shares of KKR & Co Inc. KKR decreased by 2.97%. Before having a look at the importance of debt, let’s look at how much debt KKR & Co has.
KKR & Co’s Debt
Based on KKR & Co’s financial statement as of November 8, 2022, long-term debt is at $137.65 billion and current debt is at $38.26 billion, amounting to $175.91 billion in total debt. Adjusted for $11.06 billion in cash-equivalents, the company’s net debt is at $164.85 billion.
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 includes 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. KKR & Co has $266.25 billion in total assets, therefore making the debt-ratio 0.66. 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. A debt ratio of 35% might be higher for one industry, but average for another.
Why Debt Is Important
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, due to interest-payment obligations, cash-flow of a company can be impacted. 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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