Market Overview

Exxon Mobil's Debt Overview

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Shares of Exxon Mobil Inc. (NYSE: XOM) fell by 6.54% in the past three months. Before having a look at the importance of debt, let's look at how much debt Exxon Mobil has.

Exxon Mobil's Debt

According to the Exxon Mobil’s most recent financial statement as reported on May 6, 2020, total debt is at $59.61 billion, with $31.86 billion in long-term debt and $27.75 billion in current debt. Adjusting for $11.41 billion in cash-equivalents, the company has a net debt of $48.20 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Exxon Mobil’s $355.80 billion in total assets, the debt-ratio is at 0.17. 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. A debt ratio of 35% 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, 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.

 

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