A Look Into Archer-Daniels Midland's Debt

Shares of Archer-Daniels Midland Inc. ADM increased by 23.43% in the past three months. Before we understand the importance of debt, let's look at how much debt Archer-Daniels Midland has.

Archer-Daniels Midland's Debt

According to the Archer-Daniels Midland’s most recent financial statement as reported on May 1, 2020, total debt is at $12.50 billion, with $8.61 billion in long-term debt and $3.89 billion in current debt. Adjusting for $4.73 billion in cash-equivalents, the company has a net debt of $7.77 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Archer-Daniels Midland has $48.40 billion in total assets, therefore making the debt-ratio 0.26. 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.

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, interest-payment obligations can have an adverse impact on the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.

Posted In: NewsIntraday UpdateMarketsDebt Insights
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