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Shares of American Airlines Group Inc. (NASDAQ:AAL) rose by 14.75% in the past three months. Before we understand the importance of debt, let's look at how much debt American Airlines Group has.
American Airlines Group's Debt
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Based on American Airlines Group’s financial statement as of July 23, 2020, long-term debt is at $28.70 billion and current debt is at $2.58 billion, amounting to $31.27 billion in total debt. Adjusted for $462.00 million in cash-equivalents, the company's net debt is at $30.81 billion.
Investors look at the debt-ratio to understand how much financial leverage a company has. American Airlines Group has $64.54 billion in total assets, therefore making the debt-ratio 0.48. 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 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.
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.