Group 1 Automotive (NYSE:GPI) shares have dropped 2.41 percent in the last three months. Let’s take a look at how much debt Group 1 Automotive has before we get into the importance of debt.
The Debt of Group 1 Automotive
Total debt is $2.29 billion, according to Group 1 Automotive’s most recent balance sheet, which was released on May 6, 2021, with $1.28 billion in long-term debt and $1.01 billion in current debt. The corporation has a net debt of $2.21 billion after accounting for $82.90 million in cash equivalents.
Let’s define some of the terminology used in the preceding paragraph. The portion of a company’s debt due within a year is called current debt, while the portion due in more than a year is called long-term debt. Cash and liquid securities with maturities of 90 days or less are considered cash equivalents. Current debt plus long-term debt minus cash equivalents equals total debt.
The debt-ratio is used by shareholders to determine how much financial leverage a company has. Group 1 Automotive’s total assets are $5.07 billion, resulting in a debt-to-asset ratio of 0.45. A debt-to-asset ratio greater than one shows that a significant percentage of debt is funded by assets. A larger debt-to-equity ratio could indicate that the corporation is putting itself at danger of default if interest rates rise. Debt-to-income ratios, on the other hand, vary greatly amongst industries. A debt-to-equity ratio of 35 percent may be excessive in one business but appropriate in another.
Why Are Shareholders Concerned About Debt?
Debt, in addition to equity, is an important component of a company’s financial structure and helps to its growth. It becomes an appealing choice for executives seeking finance because it has a lower borrowing cost than stock.
Interest payments can have a negative impact on a company’s cash flow. Financial leverage also allows businesses to use more money for operations, allowing equity owners to keep the excess profit earned by loan financing.
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