Over the past three months, shares of Exxon Mobil Inc. XOM fell by 8.65%. Before we understand the importance of debt, let's look at how much debt Exxon Mobil has.
Exxon Mobil's Debt
Based on Exxon Mobil’s balance sheet as of May 6, 2020, long-term debt is at $31.86 billion and current debt is at $27.75 billion, amounting to $59.61 billion in total debt. Adjusted for $11.41 billion in cash-equivalents, the company's net debt is at $48.20 billion.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Exxon Mobil has $355.80 billion in total assets, therefore making the debt-ratio 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 25% might be higher for one industry, whereas average 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.
Interest-payment obligations can impact 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.
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