Over the past three months, shares of Procter & Gamble Inc. (NYSE:PG) rose by 12.30%. Before having a look at the importance of debt, let's look at how much debt Procter & Gamble has.

Procter & Gamble's Debt

Based on Procter & Gamble’s balance sheet as of April 20, 2020, long-term debt is at $23.31 billion and current debt is at $12.70 billion, amounting to $36.01 billion in total debt. Adjusted for $15.39 billion in cash-equivalents, the company's net debt is at $20.62 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Procter & Gamble has $118.56 billion in total assets, therefore making the debt-ratio 0.3. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. For example, a debt ratio of 25% might be higher for one industry, whereas normal for another.

Why Shareholders Look At Debt?

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, 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.