Market Overview

Kansas City Southern's Debt Overview

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Over the past three months, shares of Kansas City Southern Inc. (NYSE: KSU) increased by 18.31%. Before having a look at the importance of debt, let's look at how much debt Kansas City Southern has.

Kansas City Southern's Debt

According to the Kansas City Southern’s most recent balance sheet as reported on April 17, 2020, total debt is at $3.24 billion, with $3.23 billion in long-term debt and $17.10 million in current debt. Adjusting for $91.00 million in cash-equivalents, the company has a net debt of $3.15 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Kansas City Southern has $9.77 billion in total assets, therefore making the debt-ratio 0.33. As a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. A debt ratio of 25% might be higher for one industry, whereas average 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.

 

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