A Look Into Chevron's Debt

Shares of Chevron Inc. CVX moved lower by 10.54% in the past three months. Before having a look at the importance of debt, let's look at how much debt Chevron has.

Chevron's Debt

According to the Chevron’s most recent balance sheet as reported on May 6, 2020, total debt is at $32.35 billion, with $23.66 billion in long-term debt and $8.69 billion in current debt. Adjusting for $8.49 billion in cash-equivalents, the company has a net debt of $23.86 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Chevron has $236.68 billion in total assets, therefore making the debt-ratio 0.14. 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 40% might be higher for one industry, whereas average for another.

Importance of Debt

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.