American Airlines Group's Debt Overview

Shares of American Airlines Group Inc. AAL increased by 0.98% in the past three months. Before having a look at the importance of debt, let's look at how much debt American Airlines Group has.

American Airlines Group's Debt

According to the American Airlines Group’s most recent balance sheet as reported on July 23, 2020, total debt is at $31.27 billion, with $28.70 billion in long-term debt and $2.58 billion in current debt. Adjusting for $462.00 million in cash-equivalents, the company has a net debt of $30.81 billion.

Shareholders 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. 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. For example, a debt ratio of 40% 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, 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.