Encompass Health’s (NYSE:EHC) stock has gained 0.04 percent in the last three months. Let’s take a look at how much debt Encompass Health has before we get into the importance of debt.
The Debt of Encompass Health
According to Encompass Health’s financial statement as of May 4, 2021, overall debt is $3.30 billion, with long-term debt at $3.16 billion and current debt at $137.20 million. The company’s net debt is $3.07 billion after accounting for $223.90 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. The debt-to-asset ratio for Encompass Health is 0.5, based on its total assets of $6.54 billion. A debt-to-asset ratio greater than one indicates that assets are used to fund a significant percentage of debt. If interest rates rise, the danger of defaulting on loans rises as the debt-to-income ratio rises. Varying industries have different debt-ratio tolerance criteria. A debt-to-equity ratio of 35 percent may be excessive in one business but appropriate in another.
The Importance of Debt
Debt is a vital part of a company’s capital structure, and it may help it grow. Debt typically has a lower financing cost than stock, making it a more appealing alternative for CEOs.
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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