Market Overview

A Look Into CSX's Debt

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Over the past three months, shares of CSX Inc. (NASDAQ: CSX) increased by 7.11%. Before we understand the importance of debt, let's look at how much debt CSX has.

CSX's Debt

Based on CSX’s balance sheet as of July 23, 2020, long-term debt is at $16.13 billion and current debt is at $378.00 million, amounting to $16.51 billion in total debt. Adjusted for $2.39 billion in cash-equivalents, the company's net debt is at $14.12 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering CSX’s $38.90 billion in total assets, the debt-ratio is at 0.42. 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 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, 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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