Market Overview

A Look Into PPL's Debt


Over the past three months, shares of PPL Inc. (NYSE: PPL) rose by 11.47%. Before we understand the importance of debt, let's look at how much debt PPL has.

PPL's Debt

Based on PPL’s balance sheet as of May 8, 2020, long-term debt is at $20.67 billion and current debt is at $3.22 billion, amounting to $23.89 billion in total debt. Adjusted for $915.00 million in cash-equivalents, the company's net debt is at $22.97 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. PPL has $46.33 billion in total assets, therefore making the debt-ratio 0.52. 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.

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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