Market Overview

A Look Into Exxon Mobil's Debt

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Over the past three months, shares of Exxon Mobil Inc. (NYSE: XOM) decreased by 8.60%. 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 financial statement 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.

Investors 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. 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 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, 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.

 

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