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Shares of Archer-Daniels Midland Inc. (NYSE:ADM) increased by 23.43% in the past three months. Before we understand the importance of debt, let's look at how much debt Archer-Daniels Midland has.
Archer-Daniels Midland's Debt
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According to the Archer-Daniels Midland’s most recent financial statement as reported on May 1, 2020, total debt is at $12.50 billion, with $8.61 billion in long-term debt and $3.89 billion in current debt. Adjusting for $4.73 billion in cash-equivalents, the company has a net debt of $7.77 billion.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Archer-Daniels Midland has $48.40 billion in total assets, therefore making the debt-ratio 0.26. 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 35% might be higher for one industry, whereas normal for another.
Why Debt Is Important
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.
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.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.