A Look Into Murphy USA's Debt

Over the past three months, shares of Murphy USA Inc. MUSA increased by 22.72%. Before having a look at the importance of debt, let's look at how much debt Murphy USA has.

Murphy USA's Debt

Based on Murphy USA’s balance sheet as of April 30, 2020, long-term debt is at $987.40 million and current debt is at $51.20 million, amounting to $1.04 billion in total debt. Adjusted for $200.30 million in cash-equivalents, the company's net debt is at $838.30 million.

Investors look at the debt-ratio to understand how much financial leverage a company has. Murphy USA has $2.58 billion in total assets, therefore making the debt-ratio 0.4. 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.

Importance of 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. Having financial leverage also allows companies to use additional capital for business operations, allowing equity owners to retain excess profit, generated by the debt capital.